Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698925859195.pdf (South Africa)
Tuesday, 8 November 2022] No 177—2022] FOURTH SESSION, SIXTH PARLIAMENT PARLIAMENT OF THE REPUBLIC OF SOUTH AFRICA _____________________ ANNOUNCEMENTS, TABLINGS AND COMMITTEE REPORTS _____________________ TUESDAY, 8 NOVEMBER 2022 _____________________ TABLE OF CONTENTS ANNOUNCEMENTS National Assembly 1.

Draft Bills submitted – Assembly Rule 276 ..................................................................... 2 2.
Membership of Committees ............................................................................................. 2 3.

Withdrawal and replacement of report of IPID ................................................................ 2 TABLINGS National Assembly and National Council of Provinces 1.

Minister of Forestry, Fisheries and Environment ............................................................. 3 2.
Minister in The Presidency for Women, Youth and Persons with Disabilities ................ 3 National Assembly 1.

Speaker ............................................................................................................................. 3 1 COMMITTEE REPORTS National Assembly 1.

Women, Youth and Persons with Disabilities .................................................................. 5 2.
Finance ............................................................................................................................. 6 3.

Higher Education, Science and Innovation .................................................................... 46 4.

Higher Education, Science and Innovation .................................................................... 91 National Council of Provinces 1.
Finance ......................................................................................................................... 147 ANNOUNCEMENTS National Assembly The Speaker 1.

Draft Bills submitted in terms of Assembly Rule 276(2) (1) Relocation of the Seat of Parliament Bill, 2022, submitted by Mr J S Malema, MP.

Referred to the Portfolio Committee on Public Works and Infrastructure, for information.

2.
2.

Membership of Committees (1) The following committee membership changes have been made by the African National Congress: Portfolio Committee on Social Development Discharged: Appointed: Motaung, Ms A (deceased) Mfikoe, Ms MMA 3.
Withdrawal and replacement of report of the IPID (1) A letter, dated 3 November 2022, was received from the Minister of Police requesting the Speaker to withdraw a report of the Independent Police Investigative Directorate into the killing of Lieutenant Colonel Charl Kinnear, which was submitted previously for consideration by members of the Portfolio Committee on Police.

The Minister has submitted another report, replacing the earlier one, which includes an amended classification.
2 TABLINGS National Assembly and National Council of Provinces 1.

The Minister of Forestry, Fisheries and Environment (a) Annual Performance Plan Reviews and Motivation of the Department of Forestry, Fisheries and Environment for 2022/23.

(b) Annual Performance Plan Reviews and Motivation of the Marine Living Resources Fund (MLRF) for 2022/2023.

(c) Annual Performance Plan Reviews and Motivation of the South African National Biodiversity Institute (SANBI) for 2022/ 2023.
(d) Annual Performance Plan Reviews and Motivation of the South African Weather Service for 2022/23.

(e) Annual Performance Plan Reviews and Motivation of the South African National Parks for 2022/23.

2.

The Minister in The Presidency for Women, Youth and Persons with Disabilities (a) Amendment to article 20 (1) of the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW), tabled in terms of section 231 (2) of the Constitution, 1996.
(b) Explanatory Memorandum to the Amendment to article 20 (1) of the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW).

National Assembly 1.

The Speaker (a) Reply by the Minister of Basic Education to Report of the Standing Committee on Appropriations on the Division of Revenue Amendment Bill, as approved by the Assembly on 30 November 2021.

Referred to the Standing Committee on Appropriations and Portfolio Committee on Basic Education.
COMMITTEE REPORTS 3 National Assembly 4 1.

Report of the Portfolio Committee on Women, Youth and Persons with Disabilities on the Agreement Amending the SADC Protocol on Gender and Development, dated 8 November 2022.
The Portfolio Committee on Women, Youth and Persons with Disabilities, having considered the request for approval by Parliament regarding the Agreement Amending the SADC Protocol on Gender and Development, referred to it, recommends that the House, in terms of section 231(2) of the Constitution Republic of South Africa Act 108 of 1996, approve the said Agreement.

Request to be considered.

5 2.


REPORT OF THE STANDING COMMITTEE ON FINANCE ON THE 2022 REVISED AND PROPOSED FISCAL FRAMEWORK, DATED 08 NOVEMBER 2022 The Standing Committee on Finance, having considered the revised and proposed fiscal framework referred to it, reports as follow: 1.

INTRODUCTION AND BACKGROUND 1.1.


The Minister of Finance, Mr Enoch Godongwana, tabled the 2022 Medium-Term Budget Policy Statement (MTBPS) in Parliament on 26th October 2022 in terms of Section 27 of the Public Finance Management Act (PFMA), Act No.

1 of 1999 and Section 7 (1) of the Money Bills Amendment Procedure and Related Matters Act (Money Bills Act), Act No.

9 of 2.

1.2.
9 of 2.

1.2.

The Minister, the Acting Director-General, Mr Ismail Momoniat, and senior officials from the National Treasury (NT) and the South African Revenue Services (SARS) briefed a joint sitting of the committees on finance and appropriation on 27th October 2022.

The Committees received post-Budget tabling input from the Parliamentary Budget Office (PBO) and the Financial and Fiscal Commission (FFC) on 01 November 2022.

1.3.
1.3.

The Committees held public hearings on 2 November 2022 and received a total of 6 written submissions from the Congress of South African Trade Unions (COSATU), Institute for Economic Justice (IEJ), Public Economy Project (PEP), South African 1 6 Institute of Chartered Accountants (SAICA), Budget Justice Coalition (BJC) and Healthy Living Alliance (HEALA).

1.4.
1.4.

NT and South African Revenue Service (SARS) responded to the issues raised during the public hearings and engaged with the Committee and stakeholders on 04th November 2022.

2.

POLITICAL OVERVIEW 2.1.

The Minister of Finance stated that one of the things that National Treasury was trying to do, in a difficult political environment, was to manage the trade-offs.

He reminded Members that over the past few years, more money was given to the state-owned enterprises (SOEs) and grants.
He said that this undermined spending on baseline departments and frontline services.

2.2.

The Minister said that starting from Budget 2022 and this MTBPS, National Treasury has been trying to grapple with these trade-offs, that is why it has been able to give more money for teachers and the police.

He said that while National Treasury was trying to address these issues, SOEs remained a formidable challenge.
He said that SOEs which had a strategic importance in the economy presented a moral hazard, as they made it difficult for the National Treasury to simply “walk away from them in the current environment.” 2.3.

However, the National Treasury is reprioritising resources and beginning to put more money on infrastructure and social services such as education and the police, the Minister said.
He said that were it not for the extension of the Social Relief of Distress (SRD) grant (implemented by Government during the period of Covid-19), National 2 7 Treasury would have put more resources into infrastructure and social services.

He said that the extension of the SRD grant was imposing another trade-off, as for example Government intended to employ 30,000 police officers but had to reduce that number to 15,000 new police officers in the next financial years.

2.4.
2.4.

The Minister emphasised that Government had not reduced spending on social services.

He said that he wanted Members to understand the fiscal strategy in terms of prioritisation, infrastructure and social services.

He emphasised that there was a growth element in investing in more infrastructure, while also prioritising meeting the basic needs of the people.

He said that this was the balancing act that the National Treasury was trying to achieve.

2.5.
2.5.

The Acting DG, Mr Momoniat, stated that the good message out of the 2022 MTBPS was that South Africa was restoring the health of its public finances at the time when there was a real slowdown in the global economy.

He said that there were very bleak projections in the global economy with high inflation, the impact of Covid-Zero in China and its impact on supply chains, and the ongoing Russia-Ukraine conflict.
He said that these issues were having a huge impact and inducing real shocks in some economies, citing the recent unfunded mini budget in the United Kingdom (UK) which was swiftly rejected by the markets.

2.6.

Mr Momoniat stated that global risks were significant and the National Treasury would have to take them into account, including the impact of interest rates increases in the United States of America (US) and the UK, which are South Africa’s trading partners.
He said that these risks will have an impact on many emerging economies.

He said that the message from the global economic outlook was that it is going to be “a rough next six months and perhaps even rougher next year” and Members of Parliament needed to 3 8 take cognisance of it.

Mr Momoniat emphasised that in the current global environment, National Treasury needed to be a bit more fiscally prudent than it would have normally been.

2.7.
2.7.

He said that what worked in South Africa’s favour was the higher than anticipated revenues, which have reduced the gross borrowing requirement of Government and enabled the fiscal framework to prioritise key spending areas for frontline services like health, education and policing.

He added that National Treasury had also put more money on infrastructure so that the budget began to have more of a growth orientation.

2.8.
2.8.

He explained that fiscal consolidation had really helped to put the country on a good course, emphasising that in 2023/24, a primary budget surplus of 0.7 per cent of GDP is expected.

He clarified that there was still a budget deficit, and that the country must continue paying huge debt servicing costs but would not be borrowing to pay interest.

He said that this helped to stabilise the public debt even as Government was considering taking on a portion of Eskom’s R400 billion debt.
He said that Government will be able to do this despite the global and the local shocks such as the KZN flood damage that took place in April 2022.

He noted that these events shocked the fiscal framework in a significant way.

3.

OVERVIEW OF 2022 REVISED AND PROPOSED FISCAL FRAMEWORK Revised Economic Outlook 3.1.
In 2021, the South African economy rebounded strongly from the COVID-19 pandemic, with Gross Domestic Product (GDP) growth averaging 4.9 per cent despite the impact 4 9 of the July 2021 unrests, electricity supply constraints and slow implementation of economic reforms.

Over the past two years, higher global commodity prices, a strong rebound in global economic activity and the easing of COVID-19 restrictions continued to support economic growth and improve export performance and revenue.

3.2.
3.2.

The 2022 Budget projected economic growth of 2.1 per cent in 2022/23.

Like the South African Reserve Bank’s (SARB’s) projection in September 2022, this has been revised down to 1.9 per cent.

A downward revision of economic growth can be attributed to slower global growth; impacts of flooding in KwaZulu-Natal and the Eastern Cape provinces; industrial action in certain sectors of the economy; persistent electricity supply constraints; high inflation; and low levels of investment and employment.

3.3.
3.3.

The 2022 MTBPS reported that since the tabling of the 2022 Budget, global and domestic risks to the economic outlook have materialised.

GDP growth is expected to average 1.6 per cent in the next three years.

The National Treasury expects GDP growth over the medium term to be supported through implementing economic reforms, particularly within the energy sector, stable public finances and medium-term spending increases.
The negative impact of the pandemic on employment and investment decisions is expected to weigh on the recovery over the medium term.

3.4.

Risks to the global and domestic outlook include unresolved structural constraints to growth, slower global growth, continued tightening of monetary policy, increased power cuts, a deteriorating fiscal outlook due to unfunded spending pressures and, the materialisation of contingent liabilities.
Table 1: Macroeconomic performance and revised projections Real percentage growth Household consumption 2021 2022 Actual Estimate 5.6 2.9 1.6 1.7 1.8 Forecast 2025 2024 2023 5 10 Gross fixed capital formation 0.2 4.0 1.9 3.6 3.8 Real GDP growth Consumer price index (CPI) inflation Current account balance (% of GDP) Source: SARB and National Treasury 4.9 1.9 1.4 1.7 1.8 4.5 6.7 5.1 4.6 4.6 -1.2 3.7 0.2 -1.1 -0.9 3.5.
Table 1 above shows that the inflation rate is expected to revert to the set target range of 3-6 per cent over the medium-term.

Headline Consumer Price Inflation (CPI) is expected to bridge the target range in 2022 and average 6.7 per cent.

Headline CPI is largely driven by increases in the prices of food, oil, electricity and other administered prices.

The SARB continued to tighten monetary policy, increasing the repurchase rate by a cumulative 275 basis points to 6.25 per cent, from November 2021.
3.6.

The 2022 MTBPS reported that 2.3 million people lost their jobs during the COVID-19 pandemic.

The 2022 Second Quarterly Labour Force Survey (QLFS) from Statistics South Africa shows that the number of employed persons increased by 648 000 to 15.6 million while the rate of unemployment measured at 33.9 per or 8 million persons.
While fiscal policy supports economic growth through investment in public infrastructure, NT stressed that South Africa’s economic growth rate remains too low to address its poverty and unemployment challenges.

Revised and Proposed Fiscal Framework 3.7.


The National Treasury’s medium‐term fiscal strategy is focused on reducing the fiscal risks in the short term, narrowing the budget deficit and stabilising debt, while proposing measures to enhance economic growth and restore funding for infrastructure and service delivery programmes.

3.8.
3.8.

Table 2 below shows that the consolidated revenue is expected to increase to R1.88 trillion in 2022/23 (an upward revision of R83 billion), reaching R2.22 trillion in 6 11 2025/26.

Since the 2022 Budget, revenue collection has exceeded projections across most major tax categories.
According to National Treasury, the higher revenue estimate is largely due to better-than-expected collections in the final quarter of 2021/22, upward revisions to near-term tax base growth projections and strong Corporate Income Tax (CIT) collections.

3.9.

While contribution from the increased commodity prices has waned, there has been a broad-based recovery in CIT collections.
The National Treasury however cautioned that these revenue projections may be lowered if power cuts intensify, global growth slows further or there is an escalation in the Russia-Ukraine war.

The tax-to-GDP ratio is expected to increase from 24.9 per cent in 2021/22 to 25.3 per cent in 2022/23.

Further improvement depends on a durable economic recovery.
Table 2: Consolidated 2022 fiscal framework R billion/percentage of GDP Revenue Expenditure Budget balance Gross loan debt Net loan debt 2021/22 Outcome 2022/23 Revised estimate 2023/24 2024/25 2025/26 Medium-term estimates 1 750.4 1 882.2 1 952.8 2 072.2 27.8% 2 047.0 32.6% -296.7 -4.7% 4 277.5 68.0% 28.3% 2 205.3 33.2% -323.1 -4.9% 4 752.0 71.4% 27.7% 2 241.7 31.7% -288.9 -4.1% 5 002.2 70.8% 27.5% 2 364.1 31.4% -291.9 -3.9% 5 296.1 70.4% 4 011.1 4 508.3 4 849.4 5 190.8 63.8% 67.8% 68.7% 69.0% 2 218.7 27.7% 2 477.7 30.9% -259.0 -3.2% 5 607.8 70.0% 5513.4 68.8% Source: National Treasury 3.10.
The consolidated expenditure in 2022/23 is now estimated at R2.21 trillion, R2.24 trillion in 2023/24 and almost R2.5 trillion in 2025/26.

Compared with the 2022 Budget 7 12 estimates, the government proposes a net addition of R37 billion to the main budget non-interest spending in 2022/23.

This consists of R54.1 billion in spending increases, partially offset by declared unspent funds, projected underspending and contingency reserve drawdowns.
Overall, the social wage will take up 59.4 per cent of total non- interest spending over the medium term.

3.11.

Additional resources are provided over the medium-term for the security forces, health, education, local amenities and infrastructure investment.
Government is also allocating funds to reduce fiscal and economic risks posed by Denel (R204 million to reduce contingent liabilities and an additional R3.4 billion for the turnaround plan implementation), South African National Road Agency Limited (SANRAL) (R23.7 billion) and Transnet (R5.8 billion) and plans to take over a portion of the R400 billion Eskom debt.

3.12.

The consolidated budget deficit is now projected to narrow from 4.1 per cent of GDP in 2023/24 to 3.2 per cent of GDP in 2025/26.
According to the National Treasury, South Africa’s fiscal policy is achieving its objectives of closing the gap between revenue and non-interest spending.

In 2023/24, a primary budget surplus of 0.7 per cent of GDP is projected as revenue collection has exceeded projections.

In the current year, the government will use 65 per cent of the projected additional revenue to improve its primary balance, followed by 45 per cent in 2023/24 and 37 per cent in 2024/25.

3.13.
3.13.

The National Treasury expects the gross loan debt to stabilise at 71.4 per cent of GDP in 2022/23, which is two years earlier and at a lower level than projected in the 2022 Budget Review.

Debt stabilisation in the current year reflects the impact of several changes since the Budget 2022.

Net public debt will stabilise at 69 per cent of GDP in 2024/25.

The improvement in the pace of debt stabilisation is largely a result of higher- 8 13 than-anticipated inflation and revenue.
It will be partly offset by the materialisation of fiscal risks, including a planned takeover of Eskom’s debt.

3.14.

NT reported that since 2007/08, South Africa’s public debt has risen sevenfold, from R577 billion to over R4 trillion in 2021/22.

As a result, debt-service costs are expected to rise from R303.7 billion in 2022/23 to R332.2 billion (4.7 per cent of GDP) in 2023/24, reaching R380.7 billion (4.8 per cent of GDP) in 2024/25.
Compared with the 2022 Budget estimate, debt-service costs will increase by R5.9 billion to R307.7 billion in 2022/23.

3.15.

NT cautioned that the materialisation of various fiscal risks could negatively affect the fiscal position and the government’s effort to stabilise the public finances.
Risks to the fiscal outlook include further slowdowns in economic growth, higher-than-budgeted public-service wage costs, contingent liabilities of state-owned companies, continuous electricity-supply constraints and the introduction of unfunded spending programmes.

4.

INPUTS FROM CONSTITUTIONAL AND STATUTORY INSTITUTIONS Financial and Fiscal Commission 4.1.
On the macro-economy, the FFC highlighted that as a small open economy heavily dependent on commodity exports, South Africa is exposed to global developments.

According to the Commission, macro-policy uncertainty, patchy policy implementation, low rates of fixed capital investment, deficient and intermittent power generation are weighing heavily on economic growth.
Also, the impact of load 9 14 shedding, the Transnet strike, cumulative increases in interest rates and, the resulting rising cost of living represented a risk to the fiscus and the fiscal consolidation exercise.

4.2.
4.2.

The FFC further cautioned that if the Financial Action Task Force (FATF) greylisting materialises, it will dampen the prospect of economic growth as foreign investors may become reluctant to do business in South Africa, raising rating concerns at many international institutions and leading to capital outflows.

4.3.
4.3.

On fiscal policy, the FFC noted that the impact of the Covid-19 pandemic, the Ukraine war, and the inflation shock has been cushioned by the improvement in the country's fiscal fortunes as a result of improved revenue projection.

As a result, the 2022 MTBPS presented a better-looking fiscal metrics than the 2022 Budget due to the commodity boom resulting in windfall mining profits and revenue overruns.
The FFC said that despite the projected primary budget surplus in 2023/2024 and the stabilisation of the gross government debt at 71.4 per cent of GDP in 2022/23, the FFC expects low growth and rising borrowing costs to continue increasing debt-service costs over the medium term, as the increases in CIT receipts is unlikely to become permanent.

4.4.
4.4.

The FFC supported the stance taken not to use the revenue windfall to fund permanent spending increases, but primarily to address some critical issues at strategic SOEs, to counteract the effect of the pandemic, reduce debt, and support growth.
Regarding expenditure pressures on the fiscus and sustainability of public finances and SOEs, the FFC noted that the 2022 MTBPS extended the Social Relief of Distress (SRD) grant for another year but did not provide details on a permanent Basic Income Grant (BIG).

10 15 According to the FFC, the fiscal framework's credibility and sustainability depends on the consistency of the policy stance of fiscal consolidation.

4.5.
4.5.

The FFC further noted the identified risks to the fiscal framework which include the materialisation of a higher-than-budgeted wage agreement, a permanent extension of the SRD grant without a corresponding permanent increase in funding, the financial support for strategic SOEs, and the poor financial health of most SOEs.

The FFC noted that by 2024/25, contingent liabilities are expected to exceed R1 trillion.
It emphasised that the deepening energy crisis, high inflation rate, the possible grey-listing of South Africa by the FATF, protracted wage negotiations, and above-inflation salary increases were likely to constrain growth.

4.6.

The Commission recommended that Government should continue to stay consistent on its policy stance towards maintaining fiscal credibility and ensuring fiscal sustainability in order to minimise economic risks.
It said that the medium-term spending should be reprioritised towards social and economically inclusive growth-supporting expenditure in order to mitigate the exacerbation of inequalities and socio-economic vulnerabilities in the long run.

4.7.

It further submitted that there must be transparent processes on providing fiscal support to SOEs, through publicly available reports and conditions, and reforming the evaluation criteria for granting government guarantees to SOEs.
It said that this includes establishing a governance framework with public reporting criteria that clearly defines detailed and precise profitability and other non-financial objectives for transparency.

4.8.

It said that the debt financing strategy should be aligned to economic growth initiatives in order to slow down the debt service costs and ensure that interest expenditure does not crowd-out critical spending in vital functional areas such as health and education.
11 16 In addition, government should improve expenditure management by preventing fiscal leakages and fruitless spending, the FFC submitted.

It emphasised reforms that will address vulnerabilities to corruption.

4.9.
4.9.

The FFC said that careful attention should be given to the budget and debt financing strategy to slow the annual growth rate of debt service costs and ensure that interest expenditure does not continue to consume fiscal space and crowd out spending on basic services and realising socio-economic rights.

4.10.

The FFC submitted further that Government should address weak productivity in expenditure to create job-enhancing, inclusive growth through quality expenditure and investment-enticing reforms.
In addition, long-term growth prospects will require addressing structural constraints.

To that end, Government must implement reforms that address vulnerabilities to corruption (such as procurement reform), ensure energy security by enticing private sector investment and fast-tracking the unbundling of Eskom.

Lastly, the overall increase in competitiveness of the economy through the reduction of regulatory barriers that support Small Micro and Medium enterprises (SMMEs) is urgently needed.

4.11.
4.11.

Lastly, it said that the implementation of tax reforms needs to be done in a manner that does not harm growth.

Parliamentary Budget Office 4.12.


Considering the assertions by the Minister of Finance and the 2022 MTBPS that the strategic goal of government is to reduce poverty, inequality and unemployment, the PBO questioned whether the approach taken in the 2022 MTBPS, and the solutions 12 17 offered, supports the achievement of these goals given the experience with the chosen fiscal policy stance of consolidation over the past few years.

4.13.
4.13.

The PBO raised concerns on the approach suggested that may further constrain economic activity, erode the social fabric and escalate risks to societal and economic stability.

Also, progress on structural reforms has been slow and the advertised economic benefits of these reforms will most likely not be seen or felt over the medium- term, the PBO said.
It said that the growth rates forecast in the 2022 MTBPS meant that real GDP per capita and real investment are expected to remain below the 2019 (pre- COVID-19) levels in 2025.

4.14.

The PBO submitted that fiscal consolidation has contributed to increased anger and heightened the risks of social and economic instability, as inadequate spending on social support and infrastructure has exacerbated poverty.
It said that fiscal consolidation ignores potentially huge costs to the economy and government, associated with serious risks, such as the COVID-19 pandemic.

Other serious risks include geopolitical conflict, domestic protests, climate change events, the possibility of new pandemics, global recession and the heightened likelihood of a financial and economic crisis.

4.15.
4.15.

According to the PBO, the poor performance of the South African economy, which predates the COVID-19 crisis, is due to the interrelated structural weaknesses of the economy and extreme levels of unemployment, poverty and inequality.

A path towards fiscal sustainability should consider these underlying dynamics of the economy, the PBO said.

It should ensure resources for measures to transform the structure of the economy and to alleviate suffering associated with the triple challenges faced.
The PBO 13 18 said that South Africa’s extreme inequality is a great constraint on economic growth and development.

4.16.

The PBO said it believes that fiscal policy can be a more effective tool for redistribution in an unequal society and increased social security can provide automatic stabilisers to risks and shocks.

It added that fiscal policy can also support economic development and transformation, including diversified, value-adding industrialisation and productive services.

4.17.
4.17.

The PBO cautioned that the combination of higher interest rates and volatile cross- border capital flows poses serious risks to macroeconomic stability in developing countries.
It said that maintaining a primary fiscal surplus and reducing government debt will not improve South Africa’s current account situation and prospects for growth because of the overwhelming impact and vulnerability to destabilizing, volatile short- term foreign capital flows and the high interest rate regime that this requires.

4.18.

The PBO raised further concerns that there is limited support for economic development in the 2022 MTBPS.
It submitted that efforts to fight inflation and reduce government debt levels will likely hurt small businesses and the poorest households much more than they help.

It also said that a lack of state capacity to deliver infrastructure projects as well as the insufficient progress in addressing structural constraints do not bode well for the fixed investment outlook.
It added that the sectoral reforms will not reduce the high levels of economic concentration across most sectors of the economy, including financial services.

4.19.

The PBO recommended that fiscal policy and the fiscal framework must consider current socio-economic conditions, including the extreme levels of structural unemployment, poverty and investment.
It said that fiscal sustainability should not 14 19 narrowly focus on achieving budget surpluses and reducing government debt to GDP because decisions about the fiscal framework affect broader societal and political stability.
It said that the approach where the government narrowly focuses on fiscal ratios and points to structural reforms to increase economic growth that it hopes will trickle down to struggling households should be replaced by an approach where fiscal policy is seen as an important part of a policy toolbox to transform the economy.

4.20.

The PBO submitted that tax is an important tool that can be used for the redistribution of income and wealth.
It said that greater domestic resource mobilisation can be achieved through further progressive tax reforms, leveraging development finance, and non-traditional monetary policy tools, amongst others.

It submitted that tax proposals taxing excess profits of companies that have used the inflation upsurge to profit and make up for COVID-19 losses should be considered, and windfall taxes for sectors benefiting from the commodity price boom.
It said that failure to reach a global consensus on international tax reform for digital tax leads to a situation where South Africa should unilaterally introduce domestic taxes on the digital economy.

There is a need for a systematic review of tax incentives and the removal of ineffective incentives and progressive measures to tax wealth.

4.21.

The PBO welcome the extension of the SRD grant and added that the MTBPS should have addressed the issue of basic income grant.

5.
5.

SUBMISSIONS BY STAKEHOLDERS COSATU 15 20 5.1.

COSATI said that it was deeply distressed that the MTBPS did not provide a clear plan or road map for South Africa to address its many massive challenges.
These range from a staggering 44% general and 60% youth unemployment rate, an economy in recession and struggling to recover from Covid-19, the state bleeding billions to corruption and wasteful expenditure, Eskom struggling to provide reliable and affordable energy, Transnet and PRASA ravaged by cable theft, and the July 2021 violence and the March 2022 floods.

5.2.
5.2.

COSATU submitted that there was little in the MTBPS that gave hope to workers and the nation that government has things under control and we can see the economy growing, jobs being created and the state rebuilt.

Workers looked forward to hearing decisive action from government and were left disappointed on many fronts.

5.3.
5.3.

COSATU said that Government needs to ramp up the fight against corruption, including by reversing the head count decline in the SAPS, filling key vacancies in the NPA, empowering SARS to undertake lifestyle audits of politicians, senior state managers and high wealth individuals.

5.4.
5.4.

Most worryingly, COSATU, Government continues to pursue its focus on reducing the debt by allowing public servants’ wages to be eroded by inflation and allocating below inflation increases and thus cuts in real terms to key public services that workers and the economy depend upon.

It said that Government continues to outsource the bill for state capture and corruption to public servants.
The MTBPS provided no plans to reverse the rapid decline in the head count ratio for nurses, doctors, teachers and police officers.

5.5.

COSATU said that there was little that spoke to how Government is tackling corruption, ending wasteful expenditure or rebuilding key SOEs.

It said that the failure by the NPA 16 21 to meet even 20% of its annual targets halfway through the financial year should set off alarm bells for everyone.

5.6.
5.6.

Halfway through the financial year, COSATU said, it is deplorable how far behind many key departments are in meeting their annual targets.

It said that the financial free fall of 90% of municipalities is well known, yet there was no sign of action by COGTA and SALGA in turning the state of local government around.

5.7.

Whilst the overall thrust of the MTBPS was depressing, COSATU welcomed its positive elements.
It said that these include the extension of the SRD grant until 2024, a commitment to relieve Eskom of up to 2/3 of its debt burden, additional funds to rebuild Transnet, relief for DENEL and ending of the E-Tolls saga.

COSATU also welcomed Government’s agreeing to these COSATU demands.

5.8.
5.8.

COSATU said that Government needs to table a bold and progressive budget in February that will provide relief for the poor, protect workers and public servants, tackle corruption and wasteful expenditure, clamp down on tax and customs evasion, support Eskom as well as Transnet and Metro Rail and other key SOEs, rebuild local government and restore quality public services, stimulate the economy and reduce unemployment.
It said that the country cannot afford to continue to run an economy on a wing and a prayer and expect things to change.

Budget Justice Coalition (BJC) 17 22 5.9.

The BJC is comprised of 22 civil society organisations, working across a number of sectors, with a common goal of advancing the progressive realisation of socio-economic rights in South Africa.

5.10.

It said that Government continues to prioritise debt reduction over human rights and investments in state capacity.
It said that the increase to basic education and healthcare funding still failed to ensure that spending in these areas kept up with CPI inflation and the rising demand for services, throughout the MTEF.

5.11.

BJC said that grants and pensions continue to be eroded due to the Government failing to keep grant values up with inflation, now for two years in a row.
It said that globally, governments have stepped up to insulate their people from the effects of rising energy and food prices, yet the South African government was proposing cuts to grants and thereby condemning its people to greater hunger and energy poverty.

5.12.

BJC said that the 1.7% real cut in per capita non-interest expenditure in 2022/23 is already doing harm to public services that are essential for the protection and achievement of human rights and a just transition.
It said that the primary budget surplus of 0.7% of GDP that government aims to achieve in 2023/24 is a self-imposed austerity measure of the harshest kind that will inflict further damage onto public services already buckling under the weight of state capture, a decade of austerity, and the Covid-19 pandemic.

5.13.
5.13.

BJC argued that by taking revenue out of our economy and channelling it to debt repayments, the primary budget surplus target will slow our recovery from the Covid- 19 pandemic even further, and will not enable households to “weather the storms that lie ahead”.

It said that there was no evidence to support that a primary budget surplus 18 23 will lead to greater poverty reduction, a narrowing of inequalities, or a substantial increase in employment.

5.14.
5.14.

BJC asked the following questions: when will Parliament demand an end to more austerity?

Why is gender equality not at the core of South African fiscal and budgetary policies?

What political vision do these cuts represent other than one in which the state walks away from the hard-won socio-economic rights enshrined in our 1996 Constitution?
What developmental benefits, if any, have been gained by the attacks on public education and healthcare services, among others, endorsed by Parliament over the past decade?

5.15.

BJC recommended that National Treasury should include an equity chapter in all its policy documents that will specifically outline the fiscal implications of policies on gender, race, class, disability, alongside other relevant social categories.

It said that Parliament should not endorse the goal of a primary budget surplus.
BJC added that government should honour its human rights obligations by undertaking human rights impact assessments of its fiscal and budgetary decisions.

5.16.

BJC recommended that Government should abandon the primary budget surplus objective, and instead ensure that public services and households are protected from inflation and receiving allocations that at least keep up with inflation and user demand.
BJC submitted that Government should recognise the value that public sector workers contribute to the economy and society by ensuring that wages keep up with inflation and that vacancies in public health and education, are filled.

5.17.
5.17.

BJC advocated for the implementation of progressive tax reforms targeting high net wealth and medium-high income earners to ensure fiscal sustainability, narrow inequality and raise additional long-term revenue for the universal basic income grant 19 24 and other socio-economic priorities.
It further submitted that Government should commit to a gender budgeting process that encapsulates budget allocations, taxes and revenue and debt management and in which womxn, with diverse perspectives, and with lived experience of different contexts, are centred in the process of developing goals, and debating priorities.

5.18.
5.18.

Lastly, BJC recommended that Parliament should require that all budget decisions are informed by human rights obligations, and when budget cuts are proposed, undertake a participatory human rights impact assessment and publish the findings.

SAICA 5.19.

SAICA applauded that no further tax increases were proposed and that SARS will be allocated more funding over the medium-term.
It also welcomed other initiatives such as the move to a single remuneration framework, the approval of the “Framework for professionalizing public sector”, the funding framework and enforcement of minimum criteria for state guarantees and the strengthening of National Treasury’s early warning system to improve oversight and timely assistance for municipalities.

5.20.
5.20.

SAICA noted that despite all these initiatives (some of which it feared were being implemented too late), the credibility of the budget was in question.

It said that this was evidenced by revenue predictions that were growing despite weak (and declining) economic growth and worsening tax buoyancy ratios.
It pointed out that even the SARS Commissioner stated that these estimates were steep and the MTBPS documentation 20 25 also admitted that there is significant uncertainty associated with the projections which could lead to significant downward revisions and put the fiscal strategy under pressure.

5.21.
5.21.

In light of the above, SAICA submitted that the National Treasury should provide Parliament with evidence of their research proving that breaching the 25% tax-to-GDP level will not result in the fiscal policy becoming detrimental to the economy.

5.22.

SAICA observed that the lack of credibility of the fiscal framework was also reflected on the expenditure side, with the consistent breaches of the expenditure ceiling.
It said that the National Treasury has noted that the expenditure ceilings were too weak and it was considering various approaches to safeguard fiscal sustainability and limit excessive deficits, for example, debt ceiling, expenditure or revenue rule.

5.23.

In this regard, SAICA submitted that the National Treasury should be requested to provide regular feedback on its research on the most appropriate model/policy to safeguard the country’s fiscal stability.

5.24.
5.24.

SAICA pointed out that the unbudgeted items remain a significant risk to the credibility of the budget.
It said that it noted these in its 2022 Budget Review and Appropriations Bill submissions and these included: SOEs contingent liabilities that are fast becoming government debt, financial support for municipalities that are in a precarious financial health situation, costs to fix the dilapidated water and sanitation infrastructure, costs needed to appoint 12 000 new police recruits as promised by the President in the 2022 SONA - as inflation will erode the increases given to the Police Department in the 2022 21 26 Budget, IRBA’s financing needs and the potential underfunding of the long-term funding requirements of the GEPF.
5.25.

SAICA stated that the latest known unbudgeted expenses are the Eskom debt that will be taken over by the government (+/-R200 billion) as well as the wage increases for 2023/24.

It said that the other one is increase in wages of 3.1% for the medium-term, which is insufficient considering the unions’ current demands of between 6% to 10%.

5.26.

SAICA submitted that the budget should be adjusted to cater for at least a realistic estimate of the above matters.
Furthermore, professionalising the public sector should be expedited so that the structural mix as well as individual performance management can start being addressed.

It submitted that regarding the SOEs, the National Treasury should be requested to prepare a risk-based schedule of all guarantees with a reasonable estimate of risk realization in the medium-term and Public Private Partnerships should be escalated.
It added that the R479 billion accumulated deficit of the Road Accident Fund needs urgent attention.

5.27.

SAICA stated that the MOST SERIOUS RISK to the budget is, however, “the inevitable grey listing” of South Africa by FATF.

SAICA said that this appeared to have not been factored in at all, yet it will have a profound effect on the budget and cash reserves in the National Revenue Fund that are already decreasing rapidly.
SAICA submitted that the budget should have at least prioritised immediate allocations to departments/entities tasked with enforcing the law, such as to the NPA for instance, by reallocating the R1.7bn from the “VIP unit” budget.

5.28.
5.28.

Lastly, SAICA submitted that Parliament should review its committee mandate concerning the separation between SCoF, SCoA and SCoPA to ensure that oversight 22 27 obligations don’t fall in-between the cracks and that Parliament is effective as a single collective arm of government.

Institute for Economic Justice (IEJ) 5.29.

The IEJ recommended that the Committee calls on the Minister of Finance to put the needs of all South Africans at the centre of the budget and budget processes.
It said that this entailed a radical shift in the fiscal framework, from focusing on short-term goals such as the primary budget surplus to targeting unemployment, poverty, and inequality.

It emphasised that the urgency of resolving this triple burden is more pronounced in the context of a rising cost of living crisis that disproportionately falls on the majority, low- income households, and the unemployed.

5.30.
5.30.

The IEJ’s detailed analysis and submission to the Committee provided an analysis and evidence of how the current fiscal framework is unsustainable and at odds with the State’s obligation to progressively realise human rights.

It said that the current path of austerity has had an impact on the delivery of public services, leading to a regression in the protection of human rights, and disinvestment in public services.

5.31.
5.31.

The submissions further discussed the proposals for progressive taxation to raise the maximum available resources to invest in public services, comprehensive social protection, and public employment.

The IEJ said that mobilising resources for the realisation of human rights involves raising, allocating, and spending money in a manner that prioritises people’s rights.

5.32.

It reminded the Committee that the State has a constitutional obligation to progressively realise socio-economic rights.
As such, it has a duty to prioritise those who are most 23 28 vulnerable, excluded, or discriminated against.

It is this approach that should guide priorities in the Budget.

Public Economy Project (PEP) 5.33.

PEP noted the short-term improvement in the fiscal position on the back of a nominal boom but highlighted that the real economic stagnation meant continued fiscal weaknesses ahead.
It observed that Government slowed down its spending on growth in the wake of the pandemic and a much larger slowdown is planned for 2023.

5.34.

PEP decried that there was no “end of consolidation” in the fiscal framework, as it continues for the full three years of the MTEF as indicated by falling real per capita spending on core services.
It noted that employment levels in health, education and criminal justice will be forced down further unless real reductions in government pay are executed for another three years (or if spending is increased substantially).

5.35.

PEP said that the aggressive fiscal consolidation path appears to stabilize debt, but the spending trajectory is implausible, and the “spending ceiling” is unreliable as forward guidance.
PEP further pointed out that the revenue outlook was too optimistic and major risks were not included in the baseline.

5.36.

PEP submitted that with slightly different assumptions, fiscal targets set out in MTBPS are not achievable.

Lastly, it said that the lack of reliability of key budget metrics points to a deterioration in the quality of the MTBPS and raises questions about the country’s fiscal institutions.

24 29 Healthy Living Alliance (HEALA) 5.37.


HEALA stated that it believes in food justice and for all South Africans to have equitable access to affordable and nutritious food.

It said that this can be achieved through strengthening food policies that protect the public against unhealthy food environments and those that promote good health.
The economic, household and individual costs of not realising the Right to Food are placing our people at a disadvantage to developing into a flourishing nation, Heala said.

It said that calling the health promotion levy (HPL) the “sugar tax” does not give it justice.

HEALA said that since its inception, the HPL has already shown positive results in changing consumer behaviours, but it has the potential to do much more.

5.38.
5.38.

HEALA submitted that the HPL is constantly under threat through non-transparent dealings with the private sector that dilute, delegitimize and delay the increase of the HPL to 20% - an increase that would reap many rewards.

It called on the government to wholeheartedly commit to strengthening the HPL, an existing and successful health policy, that benefits both the public’s health and the fiscus.
HEALA noted that during the 2022 Budget Speech, the Minister of Finance announced a planned increase to the HPL of 4.5% - raising the levy from 2.21 cents to 2.31 cents per gram of sugar for sugar- sweetened beverages (SSBs) above the threshold of 4 grams of sugar per 100 ml to take effect on 1 April 2022.

It said it welcomed this announcement as it would be the first increase since the HPL was enacted in 2018.

5.39.
5.39.

HEALA expressed disappointment that the National Treasury had now postponed the increase to April 2023 to allow for broader consultation on the expansion of the HPL to include fruit juices and lower the 4g threshold of the levy.

It said that the National Treasury had not given any explanations on why this postponement was necessary for 25 30 consultations nor how the decision was made.
HEALA said that it had submitted a Promotion of Access to Information Act (PAIA) application to National Treasury to demand records of evidence that informed the decision to delay the increase of the HPL and to share meeting minutes between Treasury, the Sugar Cane Industry and the Consumer Goods Council concerning the HPL.
It said that a response was promised by the National Treasury to be sent no later than 10 October 2022, however, that response was had not been given at the time of the MTBPS and the hearings of the fiscal framework in Parliament.

HEALA decried lack of transparency and accountability as worrying.

5.40.
5.40.

HEALA submitted that the HPL needs to be increased to the recommended 20% rate and public consultations to decrease the 4g threshold and expansion of the HPL to include fruit juices are needed with urgency.

HEALA also submitted that the National Treasury provides transparent information about any correspondence with the food and beverage industry in relation to the HPL 6.

RESPONSES BY NATIONAL TREASURY TO INPUTS AND SUBMISSIONS 6.1.
In its response to inputs from Constitutional and statutory institutions and stakeholders, the National Treasury sought clarify government’s fiscal positions and strategy, the proposed fiscal policy stance, South Africa’s structural growth problem, revenue and tax proposals, expenditure, the financing and debt management strategy, strategy in relation to SOEs, public participation strategy and other matters raised during the public hearings and Committee deliberations.

6.2.
6.2.

The National Treasury stated that the MTBPS does not announce new policy proposals such as tax measures or detailed expenditure allocations, as this is only done in the 26 31 February budget.

It said that the fiscal strategy is not exclusively focused on debt reduction, but on strengthening public finances for sustainable growth and service delivery.
It said that in order to ensure sustainable public finances and to achieve long- term intergenerational equity, it is crucial to carefully balance revenue, expenditure and borrowing.

It explained that financing and debt management also play an important role.

6.3.

The National Treasury explained that government plans to implement its strategy as presented in the 2022 MTBPS.
On average, over the 2022 MTEF, the National Treasury explained that government will use 49 per cent of windfall revenue to improve the primary balance and 51 per cent to increase non-interest expenditure.

It explained further that government will not rely on transitory revenue gains to fund permanent spending increases but will instead use these funds to reduce some of the risks and contingent liabilities.
It said that as the gross debt burden declines, government will repair the broader public-sector balance sheet by reducing risks posed by public entities.

6.4.

The National Treasury vehemently disputed assertions that the 2022 MTBPS was austere.

It said that no further budget reductions had been announced in the 2022 MTBPS.

Instead, additional spending in critical spending areas were made using a portion of revenue improvements.
It added that, excluding the once-off payments in in year (2022/23) adjustments, the main budget non-interest expenditure will grow on average in line with CPI inflation over the 2023 MTEF.

6.5.

The National Treasury further clarified that despite projections to reach a primary surplus by 2023/24, government debt was still very high.

Each year, a budget deficit 27 32 adds to debt, increasing debt-service costs, limiting government’s capacity to spend more – and this cannot continue indefinitely.

6.6.
6.6.

The National Treasury explained that over the MTEF, an allocation of R3.56 trillion, or 59.2 per cent of total non‐interest spending is dedicated to the social wage.

This aims to alleviate poverty, reduce unemployment and accelerate growth.

It said that despite measures aimed at controlling expenditure growth, the funding for the social wage has been protected to ensure that necessary goods and services are provided to those who are in need.

6.7.
6.7.

The National Treasury further explained that the fiscal strategy in the 2022 MTBPS is directed at reducing fiscal risks in the short-term, narrow the budget deficit and stabilise debt, while proposing measures to enhance economic growth and restore funding for infrastructure and service delivery programmes.
It explained further that the National Treasury was implementing this strategy for several reasons including that since 2007/08, South Africa’s public debt had risen sevenfold, from R577 billion to over R4 trillion in 2021/22, thus raising payments on interest which were crowding out spending on essential services.
It added that a narrowing budget deficit reduces the need to issue new debt and allows government to better manage the spike in debt redemptions, reduce growth in debt-service costs and gradually restore growth in the baselines of key service delivery and infrastructure programmes.

6.8.
6.8.

Another reason advanced for this stance was that the country’s stock of debt remained high, and prudent public financial management remained essential to reduce the proportion of revenue dedicated to servicing debt over time.

The National Treasury explained further that stable public finances will underpin economic growth, maintain government’s commitment to support vulnerable households and help reduce overall 28 33 risks to the fiscal outlook.
It said that this approach avoids the pitfalls of risky fiscal action that has led to currency depreciation and economic instability in several other countries.

6.9.

On medium-term spending plans, the National Treasury explained that the 2023/24 financial year is the final year of the fiscal consolidation announced in the 2020 MTBPS.

It said that the 2022 MTBPS does not include any new budget reductions.
It said that from 2024/25, the main budget non-interest expenditure is expected to grow above CPI inflation.

It said that the main budget non-interest expenditure will increase by a net R52.4 billion in 2023/24 and R58.5 billion in 2024/25 compared with the 2022 Budget.
This includes the following proposed additions over the next two years: R66.9 billion for health, education and provision of free basic services by local government, and a one-year extension of the COVID-19 social relief of distress grant; R8.9 billion for safety and security; R11.3 billion for infrastructure investment, including rehabilitating damaged municipal infrastructure and refurbishing provincial roads.

6.10.
6.10.

On the critique of the revenue forecast that was too optimistic, the National Treasury stated that strong revenue collections were again due to corporate income tax, but this time for improvements in finance and manufacturing sector, not just mining.

It explained that the fuel levy relief and increased VAT refunds in 2022/23 masked higher in-year revenue across most major tax categories.

It explained that the 2022 MTBPS revenue estimates align with the baseline macroeconomic projections.
It explained further that higher inflation leads to higher tax bases and nominal GDP, improving expected revenue.

It said that the medium-term tax elasticity assumptions from the 2022 Budget are maintained for the 2022 MTBPS estimates.

It explained that the majority of assumed revenue gains from high commodity prices were excluded from the corporate income tax forecasts over the next two years (as the assumed buoyancy of corporate 29 34 income tax is 0 for 2023/24).
The National Treasury argued that the rebuilding of SARS was evident in improved revenue collection and compliance trends.

It said that additional revenue gains from SARS efficiency improvements represented an upside risk to the revenue estimates.

The National Treasury however noted that there are downside risks if commodity prices fall below forecasted values or if a global recession materialises.

6.11.
6.11.

The National Treasury assured that it will consider the tax policy issues in the 2023 Budget in February as the MTBPS did not include any announcements on tax policy.

It stated that it had responded to HEALA’s PAIA request on minutes of meetings with the sugar cane industry.

The National Treasury stated that it had had no such record of meetings taking place.

6.12.
6.12.

On expenditure issues, the National Treasury conceded that effectiveness of the expenditure ceiling, which was introduced in the 2013 Budget, has been limited as fiscal imbalances continued to grow since then.

It stated that while fiscal consolidation had achieved some success, debt continued to rise as a share of GDP due to new spending pressures and the declining economic growth.

The National Treasury explained that it was considering additional options to protect fiscal sustainability.
It said that it had tested the appropriateness of fiscal rules such as a debt ceiling, expenditure or revenue rule, which may assist in limiting excessive deficits.

6.13.
The National Treasury explained that spending risks were not allocated in the 2022 MBPS baseline as the: Eskom debt take-over still needed to be quantified and will only be included in the baseline when it materializes; the public sector wage bill is still under negotiation; the unallocated reserve cushions the fiscal framework from fiscal risks that may materialise over the medium term; permanent extension of the SRD grant, or any 30 35 replacement thereof, needs to be matched by a corresponding permanent increase in revenue, decrease in spending or combination of the two; and the findings of some spending reviews are being implemented in the peace and security and general public services functions.
The National Treasury stated that in most cases, expenditure review findings remain under discussion or will take longer to implement because they require legislative amendments and political conversations.

6.14.

The National Treasury explained that it is regrettable that some policy decisions with financial implications have not been finalized.

It said that the inclusion of reserves is meant to protect the integrity of the overall fiscal framework.
It said that this strategy has already improved clarity and decision-making during the 2023 budget process.

6.15.

On the uncertainty of the public sector wage bill, the National Treasury explained that most of the unions rejected the 3 per cent facilitated offer by the state, which meant the funding allocations for 2022/23 cost-of-living adjustment (COLA) could not be included in the 2022 Adjusted Estimates of National Expenditure (AENE).
It said that no resolution was reached in the conciliation process.

It said that the unions now have a certificate to embark on an industrial action.

Nevertheless, the proposed fiscal framework assumes a broad-based increase in 2022/23 and its carry-through effects over the MTEF.

This helps to safeguard the credibility of the fiscal balances.

6.16.

The National Treasury explained that over the past 15 years, the consolidated wage bill grew significantly.
In the context of slow economic growth, the growing wage bill began crowding out spending in other critical areas, including service delivery.

It said that between the 2020 and 2021 Budgets, government reduced the medium-term compensation of employees’ baselines by more than R300 billion in order to stabilise the public finances.
It said that in order to avoid pre-empting the wage negotiation 31 36 process, no provisions have been made for wage increases in 2023/24 although increases will need to remain within the available fiscal resources so as not to compromise other spending priorities.

6.17.

The National Treasury pointed out that it was allocating funds to reduce fiscal and economic risks posed by Denel, SANRAL and Transnet, and plans to take over a portion of Eskom’s debt.
It said that these actions will help secure the gains of fiscal consolidation by improving economic growth and associated revenue collection and reducing contingent liabilities.

6.18.

On the possible grey-listing of South Africa by FATF, the National Treasury explained that over the 2023 MTEF, additional resources to carry out work will be allocated to particularly law enforcement agencies and the Financial Intelligence Centre.

6.19.
6.19.

On climate change issues, the National Treasury stated that in line with South Africa’s global commitments, fiscal policy will continue playing its part to shift economic incentives towards cleaner forms of energy.

It said that a paper on the design options for tax free allowances under the carbon tax will be published in 2023 for public comments and consultation 6.20.
On public participation, the National Treasury pointed out that South Africa remains among the top 2 countries with the most transparent budget processes in the world.

I explained that the global transparency average is 45 out of 100, while South Africa scores the second best with 86 out of 100, a score which reflects South Africa’s commitment to transparency.

32 37 7.

COMMITTEES’ OBSERVATIONS AND RECOMMENDATIONS 7.1.


The Committee notes the concern from some stakeholders that the 2022 MTBPS continues with the austerity started in the 2022 Budget.
While the National Treasury vehemently rejects this view on the basis that there are no budget reductions over the medium term, and that there was additional spending allocated and government debt levels remain high, the Committee recommends that the National Treasury considers some of the arguments raised by these stakeholders.
The Committee understands the arguments by stakeholders on austerity to be informed by the fiscal consolidation path of government of the last few years as headlined by spending cuts or spending increases that are below inflation, with declining headcounts and no credible measures to deal with the rising unemployment, poverty and inequality.
The Committee recommends that the National Treasury should report to the Committee the extent to which the previously adopted countercyclical fiscal policy and fiscal consolidation have been effective in stabilising the fiscal framework.

The Committee welcomes that the 2023/24 financial year is the final year of the fiscal consolidation announced in the 2020 MTBPS.

We also welcome that the 2022 MTBPS does not include any new budget reductions.

7.2.
7.2.

While NT is adamant that the 2022 MTBPS, and the Budget in general, is pro-poor, more and more people are unemployed and are trapped in poverty and inequality.

The MTBPS itself reported that 2.3 million people lost their jobs during the Covid-19 pandemic.
The 2022 Second Quarterly Labour Force Survey from Statistics South Africa also shows that the number of unemployed persons increased by 684 000 to 15.6 million in that quarter, leading to a rate of unemployment being measured at 33.9 per cent (or over 44 per cent on the expanded unemployment definition) or 8 million persons (or over 12 million on the expanded definition).
The Committee remains extremely concerned about this, especially in the light of an economic growth rate that is too low 33 38 to address poverty, inequality and unemployment challenges.

The Committee recommends that the Budget should consider far more the impact of the high cost of living on the economy, particularly on the poor households.

7.3.

The Committee notes the submissions made by the stakeholders regarding increasing the social grants and is sympathetic to them.
The Committee also welcomes the extension of the SRD grant by another year.

Given the consequences of Covid-19, the July 2021 social unrest, the KZN floods and the increased poverty, inequality and job losses, the unemployed and poor need to be cushioned more.

The Committee reiterates its previous position that the National Treasury and government should seriously consider a Basic Income Grant (BIG).

The Committee’s views on this are not unrealistic or populist.
The Committee is acutely aware of the severe constraints on the budget and the reduced fiscal space, and the huge cost that the State will have to bear.

But given the conditions in the country at present and the limited growth rates and job-creation, not to provide a BIG could lead to social consequences that will cost the State and society far more.

The BIG can be introduced in an incremental, measured way that takes into account the limited fiscal space.

The necessary trade-offs will have to be made.


The tax proposals made by various stakeholders in the hearings on the funding of the BIG also need to be considered.

The Committee will raise this with the Appropriations Committee to consider taking further.

7.4.

The Committee notes that the social wage - which is the combined spending on health, education, housing, social protection, employment programmes and local amenities- is protected in the revised and proposed fiscal framework.
The Committee welcomes that over the MTEF, an allocation of R3.56 trillion, or 59.2 per cent of the consolidated non‐ 34 39 interest spending is dedicated to the social wage with the aim of alleviating poverty and reducing unemployment and inequality.

7.5.

The Committee welcomes the slight improvement to the country’s fiscal framework.
Despite the challenging economic environment internationally and domestically, gross government debt is now expected to stabilise at 71.4 per cent of GDP in the current year – two years earlier and at a lower level than was projected in the 2022 Budget.

7.6.
7.6.

The Committee further welcomes that gross tax revenues have been revised up by R85.5 billion in 2022/23, which is attributed to better-than-expected revenue collection in the final quarter of 2021/22, the upward revisions to near-term tax base growth projections and strong corporate income tax collections.

The Committee however notes that these revisions may be based on revenue forecasts that are rather optimistic, as argued by some stakeholders in the hearings.
The Committee notes the explanations from the National Treasury that the strong revenue collections were due to CIT collection from the finance and manufacturing sectors, rather than mining alone, as was the case in the previous years.

The Committee also notes that most assumed revenue gains from high commodity prices were excluded from the CIT forecasts over the next two years (as the assumed buoyancy of CIT is 0 for 2023/24).

7.7.
7.7.

The Committee notes further that the main budget revenue is expected to increase to 25.5 per cent of GDP in 2022/23 (R1 694 trillion) and average 24.9 per cent over the MTEF.

Sixty five per cent of this projected additional revenue will be used to improve the primary balance, followed by 45 per cent in 2023/23 and 37 per cent in 2024/25, 35 40 leading to a primary budget surplus, after a long period of time.

The Committee however notes that despite this, South Africa still has high levels of debt.
7.8.

While the National Treasury expects gross loan debt to stabilise at 71.4 per cent of GDP in 2022/23, which is two years earlier and at a lower level than projected in the 2022 Budget Review, the Committee remains concerned about the high levels of the debt.
The Committee notes that South Africa’s public debt increased sevenfold from R577 billion in 2007/08 to over R4 trillion in 2021/22, with increasing debt service costs to match, which are projected to increase, as a share of the main budget expenditure, from 15.2 per cent in 2022/23 to 16.8 per cent in 2025/26.
The Committee reiterates its recommendation that the National Treasury reports quarterly to it on the effectiveness of its debt management strategies that would ensure that the level of debt stabilises over the medium-term as expected and that extra-budgetary costs and contingent liabilities do not increase the debt levels further.

7.9.
7.9.

The Committee notes, with great concern, the significant risks to the fiscal framework and the fact that the National Treasury confirmed that the risks previously identified in the 2022 Budget have already materialised.

The continued bailout of SOEs undermines government’s fiscal stabilisation efforts.

The Committee recommends that the bailing out of SOEs, which is one of the biggest risks to the fiscus, should be subject to stringent conditions and accountability measures.
In this regard, the Committee notes the proposed conditional allocations to public entities such as Denel, SANRAL and Transnet in order to reduce contingent liabilities and enable these entities to continue 36 41 supporting economic growth.

The Committee recommends a similar approach as far as possible be taken on all SOE bail-outs.

7.10.

The Committee also notes the Eskom debt relief programme which will result in government taking over a portion of Eskom’s R400 billion debt.
It is envisaged that this debt takeover will enable Eskom to implement planned capital investments and critical maintenance.

The Committee will await the finalisation of the debt relief programme and more details in the 2023 Budget in February.

The Committee however strongly believes that the challenges at Eskom are not only financial, but also about management, leadership, governance and accountability.

7.11.
7.11.

The Committee further recommends that the National Treasury should consider SAICA and FFC recommendations on SOEs, which include a focus on operational deficiencies and proper management of procurement, contracts and payments, a risk-based approach to government guarantees and that a differentiation be made between repair and maintenance spending versus funding for new infrastructure.

7.12.
7.12.

The Committee notes the progress in the implementation of economic reforms that are expected to support investment and job creation under Operation Vulindlela.

We note that on the energy space, the National Energy Crisis Committee will focus on improving the performance of existing power stations and adding new generation capacity to the grid, which is estimated at about 14 gigawatts over the next two years.
We also note the corporatisation of Transnet National Ports Authority and the gazetting of the National Rail Policy in May 2022, with a focus on raising competitiveness, lower logistics costs and encouraging investments.

We note further that the broadband high value spectrum has been auctioned and draft by-laws for redeployment of telecommunications infrastructure have been published for public comments.
The Committee continues to 37 42 urge for speed to the finalisation and implementation of these and other similar reforms in order to enhance growth.

7.13.

The Committee notes that the 2022 MTBPS does not adequately focus on the Economic Reconstruction and Recovery Plan (ERRP), particularly on progress.
The Committee recommends that a forum should be created consisting of the PBO, FFC, NT and other experts to discuss the economic growth trajectory and strategy that would put South Africa on a sustainable upward growth trajectory, as the current fortunes derived from the commodity price boom are temporary and should not be overly relied upon, as NT itself concedes.

7.14.
7.14.

Since November 2021, the South African Reserve Bank has hiked the repurchase (repo) rate by 275 basis points with the intention of maintaining price stability amid raging inflation.

While inflation targeting falls within the ambit of the South African Reserve Bank (SARB), the Committee is concerned about the impact of the continued tightening of monetary policy and the impact of this on the cost of living, particularly for the poor and unemployed.
The Committee however understands that there are global pressures as other central banks are tightening their monetary policy in response to inflation in their jurisdictions.
The Committee believes that there is however a need for far more effective coordination between the fiscal and monetary policies and recommends that the National Treasury considers the FFC’s view that “if fiscal policy is credible and sustainable, that would remove pressure from the monetary policy or on the SARB to hike interest rates”.
The Committee will also engage with SARB in order to understand if there are no other favourable policy alternatives that could be implemented, within 38 43 the constitutional and legislative mandate of SARB, which would not involve the aggressive hiking of the repo rate.

7.15.

In the 2022 Budget Speech in February, the Minister of Finance stated that he had agreed with the Minister of Minerals and Energy to review all aspects of the fuel price.
The Committee further notes and welcomes the fuel levy relief announced by the two Ministers in March and May 2022, with the aim of alleviating pressure of the rising fuel costs on households.

The Committee requires that the Minister of Finance reports back to it on progress made in reviewing all aspects of the fuel price regime.

7.16.
7.16.

The Committee notes that the 2022 MTBPS does not appear to have explicitly budgeted for fighting corruption and Gender Based Violence (GBV) while the levels of crime in the country are increasing.

The Committee also notes concerns from stakeholders in this regard and urges the National Treasury to explicitly consider these issues in the budget and the budget process.

7.17.
The Committee reiterates its concerns about NT’s very late introduction of the (anti- money laundering and counter-terrorism financing) bills to Parliament and notes that despite the potential greylisting of South Africa by FATF and the dire impact on the economy that this outcome could have, particularly on foreign direct investment, the exchange rate, access to corresponding banking and cross-border trade, the 2022 MTBPS neither mentions this as a risk to the fiscus in its risk statement nor analyse its potential impact over the medium-term.
The Committee urges NT to consider the impact that greylisting may have on the 2022 proposed fiscal framework.

7.18.

The Committee is concerned that there appears to be lack of understanding of the future of the Gauteng e-tolls.

While the public seems to believe that the e-tolls have been scrapped, clarification was provided that a new funding model was being proposed to 39 44 fund the e-tolls.
The Committee requires the Minister of Finance to provide a written response on this after adoption of this report.

7.19.

The Committee recommends, as it has in its previous reports, that the Public Procurement Bill be tabled in Parliament for processing.

The Committee believes that delays in tabling and processing this Bill compromises transformation and localisation (procurement of locally produced goods.)
In compliance with section 217 of the Constitution, the Committee believes that black economic empowerment, youth, women, and people living with disabilities should be given preference when procuring.

7.20.

Participants raised several issues with regards to the risk of unresolved wage bill on the fiscal framework.

The Committee notes that while the wage bill has an impact on the fiscal framework, this matter will be referred to the Appropriations Committees for further consideration 7.21.
The Committee thanks all those who participated in its processes.

Having considered the 2022 Revised and Proposed Fiscal Framework, the Standing Committee on Finance adopts it.

The Democratic Alliance and the Freedom Front Plus reserve their positions.

40 45 3.
BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON HIGHER EDUCATION, SCIENCE AND INNOVATION ON THE PERFORMANCE OF THE DEPARTMENT OF SCIENCE AND INNOVATION FOR THE 2021/22 FINANCIAL YEAR, DATED 4 NOVEMBER 2022 The Portfolio Committee on Higher Education, Science and Innovation, having considered the performance of the Department of Science and Innovation, Council for Scientific and Industrial Research, Human Sciences Research Council, National Research Foundation, South African National Space Agency and the Technology Innovation Agency for the 2021/22 financial year, reports as follows: 1.
INTRODUCTION 1.1.

Mandate of the Portfolio Committee on Higher Education, Science and Innovation The Portfolio Committee on Higher Education, Science and Innovation (hereafter, the Committee) is mandated by the Constitution and the Rules of Parliament to oversee the activities and performance of the Department of Science and Innovation (hereafter, the Department or DSI) and the entities that report to it.
Furthermore, the Committee must consider, amend and/or initiate legislation; consider international agreements and provide a platform for the public to present views on issues and/or legislation specific to the science, technology and innovation (STI) system.

1.2.
1.2.

Purpose of and method to develop the 2022 Budgetary Review and Recommendation Report of the Portfolio Committee on Higher Education, Science and Innovation To enhance Parliament’s oversight role, the Money Bills Amendment Procedure and Related Matters Act (No.

9 of 2009) was promulgated to provide Parliament with a procedure to make recommendations to the Minister of Finance to amend the budget of a national department.
A key provision of this Act is that Portfolio Committees must annually compile Budgetary Review and Recommendation (BRR) Reports.

These BRR Reports provide an assessment of service delivery performance given available resources; evaluates the effective and efficient use of 1 46 resources; and may make recommendations on the forward use of resources.
The BRR Reports are also source documents for the Committees on Appropriations when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTBPS).

Accordingly, the Committee considered the Department and entities’ 2021/22 Annual Performance Plans, budget allocations, quarterly performance and expenditure trends, and conducted oversight by having briefings on specific initiatives and programmes.
On 19 and 21 October 2022, the Committee considered the 2021/22 Annual Reports of the Department, Council for Scientific and Industrial Research (CSIR), Human Sciences Research Council (HSRC), National Research Foundation (NRF), South African National Space Agency (SANSA) and the Technology Innovation Agency (TIA).
The Committee also invited the Financial and Fiscal Commission (FFC) and the Auditor-General of South Africa (AGSA) to provide an analysis of the budget and performance, and explain the audit outcomes of the science and innovation portfolio, respectively.

2.

POLICY CONTEXT 2.1.


National Development Plan and Medium-Term Strategic Framework Science, technology and innovation are considered crucial for the creation of wealth and improving the quality of life in modern society, and countries that increase their investment in STI during times of economic crisis fared better in recovering from its effects than those that maintain or decrease STI investment levels.
The National Development Plan (NDP) 2030 identifies the need to increase the size, coherence and effectiveness of the National System of Innovation (NSI) because STI is crucial for national development.

Hence, the country must enhance its investment in infrastructure, improve the skills base and ensure that it better exploits the knowledge generated from its investments in research, development and innovation (RDI).
This requires that, among others: • • South Africa invests more in research and development (R&D); The STI institutional arrangement improves the link between innovation and the productive needs of industry; 2 47 • Government should collaborate with the private sector to raise the level of R&D in companies; and • Public investments in research infrastructure should be focussed on and fulfil the needs of a modern economy.
The 2019-2024 Medium-Term Strategic Framework (MTSF) is framed around seven apex priorities.

Although these apex priorities are all interrelated, the Department’s focus and commitments are mainly on Priorities 2 (Economic Transformation and Job Creation) and 3 (Education, Skills and Health).

The interventions led by the Department are: Priority 2: Economic Transformation and Job Creation Outcome: Improve competitiveness through Information and Communication Technology (ICT) adoption.
• Intervention: Increase investment in gross expenditure on R&D to 1.1% of GDP by 2024.

• Intervention: Strengthen the NSI by publishing 35 000 research articles by NRF- funded researchers cited in the Web of Science Citation database by 2024.

Priority 3: Education, Skills and Health Outcome: Expanded access to Post-School Education and Training (PSET) opportunities.
• Intervention: Increase the number of black lecturers supported through the New Generation of Academics Programme (nGAP) by awarding bursaries to 12 200 PhD students by 2024.

Outcome: Improved quality of PSET provisioning.

• Intervention: Implement the nGAP by awarding bursaries to 24 400 pipeline postgraduate (honours and masters) students by 2024.

• Intervention: Increase the number of emerging researcher grants to 3 000 by 2024 to improve the percentage of PhD-qualified staff.
Outcome: A responsive PSET system.

• Intervention: Conduct 20 intellectual property (IP) awareness sessions at Technical and Vocational Education and Training (TVET) colleges by 2024.

3 48 • Intervention: Support 1.3 million users from the university and post-school sectors, national research facilities, science councils, and all public research-performing institutions through the South African National Research Network (SANReN) by 2024.

2.2.
2.2.

2019 White Paper on Science, Technology and Innovation Cabinet approved a new STI White Paper in March 2019.

Henceforth, the Department has been keenly focused on formulating and finalising the implementation plan for this White Paper; namely, the 2021-2031 STI Decadal Plan.
Although significant strides were made under the former 1996 Science and Technology White Paper, the current STI White Paper and Decadal Plan proposes the vision of a “whole-of-government approach” to innovation to ensure that greater and inclusive well-being and prosperity is derived through STI.

To realise the potential contribution of science and innovation to South Africa’s socio-economic ambitions, the STI Decadal Plan sets a number of system goals.
These include (i) an inclusive and coherent NSI, (ii) an expanded and transformed research system, (iii) increased and future-proof human capabilities, (iv) an enabling innovation environment, and (v) significantly increased funding for the NSI.

2.3.
2.3.

Strategic Outcome-Oriented Goals of the Department of Science and Innovation The new era of STI policy places greater emphasis on technology and innovation deployment, the use of innovation in support of a capable state and service delivery, inclusivity, transformation, partnerships to address policy coherence, the development of human capabilities, knowledge expansion, innovation performance and increased investment.
Hence, the Department identified the following six strategic outcomes for the period 2020-2025: Outcome 1: A transformed, inclusive, responsive and coherent NSI; Outcome 2: Human capabilities and skills for the economy and for development; Outcome 3: Increase knowledge generation and innovation output; Outcome 4: Knowledge utilisation for economic development in (a) revitalising existing industries and (b) stimulating R&D-led industrial development; Outcome 5: Knowledge utilisation for inclusive development; and Outcome 6: Innovation in support of a capable and development state.
4 49 3.

2021/22 FINANCIAL PERFORMANCE OF THE DEPARTMENT OF SCIENCE AND INNOVATION The President stated in the 2021 State of the Nation Address that the overriding priorities of 2021 were to (i) defeat the coronavirus pandemic, (ii) accelerate economic recovery, (iii) implement economic reforms to create sustainable jobs and drive inclusive growth, and (iv) strengthen the state and fight corruption.
The pandemic, more so than other recent crises, has emphasised the importance of science and innovation to both prepare for and react to future crises and has highlighted the need to ensure that STI policies direct RDI efforts toward achieving socio-economic and environmental sustainability, inclusivity and resilience.

Hence, the resurgence of thought that advocates that STI should be considered an investment and not merely an expenditure item against the national fiscus.
The 2021 Budget was framed by the policy objectives set out in the 2020 MTBPS, which were to promote economic recovery and return public finances to a sustainable position.

Hence, fiscal policy continued to focus on short-term economic support, pro-growth fiscal consolidation and debt stabilisation.
The 2021/22 consolidated government allocation for innovation, science and technology was R17.4 billion (R15.4 billion in 2020/21, revised estimate), which was 1% of the total Medium Term Expenditure Framework (MTEF) allocation and 8.4% of the consolidated economic development allocation of R207.5 billion.

3.1.

Vote 35: Science and Innovation 2021/22 Budget Allocation The Department’s 2021/22 budget allocation increased from R7.3 billion in the 2020/21 financial year to R8.9 billion.
This represented, when adjusted for inflation, a real increase of 17.8% and closely returned the Department’s allocation to what it was in 2020 (R8.8 billion) before the budget cuts to meet the needs of the national COVID-19 response.
In terms of economic classification, the apportionment of the Department’s 2021/22 budget allocation of R8.9 billion remained the same as in previous years and comprised Current payments of R566.5 million (6.3%), Transfers and subsidies of R8.4 billion (93.6%), which increased from R6.8 billion in 2020/21, and Payments for capital assets of R2.9 million (0.03%).
The Department’s budget funds five major programmes, namely: 5 50 • • • • • Programme 1 – Administration Programme 2 – Technology Innovation Programme 3 – International Cooperation and Resources Programme 4 – Research, Development and Support Programme 5 – Socio-economic Innovation Partnerships The percentage budget allocation to the Programmes remained essentially the same as in previous financial years and Programmes 2, 4 and 5 that are responsible for the Transfers to the Department’s entities, received 94.7% of the Department’s total budget allocation.
Notable changes in the allocations to Transfers and subsidies from 2020/21 to 2021/22 included: • The allocation for Innovation Projects research increased from R171.4 million to R503.3 million.

This allocation supports innovation activities that aim to increase, commercialise and use publicly funded IP.

• The allocation for Science awareness and initiatives to encourage youth participation in science increased from R33.5 million to R91.6 million.
• The allocation for the Square Kilometre Array’s (SKA) capital contribution to research increased from R456.6 million to R802.4 million.

This was for the 20 antennae that will be added to the MeerKAT.

• • The allocation to the CSIR: Mining R&D increased from R41.7 million to R63.5 million.

The allocation to the CSIR: Cyberinfrastructure R&D increased from R60.2 million to R272.1 million.
This was the next tranche of funding to enhance the National Integrated Cyberinfrastructure System, which was allocated R3.6 billion over the medium term.

The 2021 MTBPS stated that the Department had reprioritised funds over the MTEF to support technology localisation, beneficiation, advanced manufacturing and research by the NRF.

The 2021/22 Adjusted Estimates of National Expenditure (AENE) showed that the Department’s budget allocation increased by R72.3 million to equal R9 billion.
This increase comprised R67 million for Transfers and subsidies, R2.8 million for Current payments and R2.5 million for Payments for capital assets 6 51 The R67 million allocated for Transfers and subsidies formed part of the Presidential Youth Employment Intervention.
Of this: • R25 million was to provide training to 450 graduates and 50 community mentors as environmental champions to conduct door‐to‐door community education and awareness campaigns in partnership with the Duzi Umngezi Conversation Trust; • R32 million was to appoint 900 unemployed graduates through the Water Research Commission’s water graduate employment programme, aimed at improving employment readiness in the water sector; and • R10 million was to provide training to 250 graduates at the CSIR, to support it in various fields.
The remaining R5.3 million of the R72.3 million increase was allocated for higher salary increases than what the main budget provided for.

Significant virements and shifts were effected to meet South Africa’s obligations for the SKA’s capital contribution to research.
These totalled R215.7 million and included: • From Programme 2: R70 million from TIA and R5.7 million from the Green Nano Chemistry and Nano Medicine Platforms; and • From Programme 4: R105 million shifted within the NRF and R35 million from the CSIR’s Cyberinfrastructure R&D.
Other significant virements and shifts included: • R33.9 million shifted from the South African Medical Research Council (SAMRC) to the Network for Genomic Surveillance and mRNA Vaccine Technology Transfer Hub within Programme 2; • • R30.9 million shifted from TIA to SANSA for the Space Weather Centre; R20 million shifted within the NRF for human resource development at the Centres of Excellence; • R25.9 million from the NRF to Programme 5 for Innovation for Inclusive Development; and 7 52 • R38.6 million from the CSIR to the Technology Stations Programme.
The 2021/22 AENE stated that the Department’s entities spent more of their ring‐fenced funds in 2021/22 for projects undertaken on behalf of the Department than they did in 2020/21, resulting in fewer surplus funds being surrendered to the Department.

After the AENE process, further virements totalling R62.9 million were effected.

In addition, R11.2 million was shifted within Transfers and subsidies.
The latter funds were used for: • • • • • • • • A wastewater surveillance system for COVID-19; The relocation of the Centre for Proteomic and Genomic Research to the Cape Health Innovation Campus; The development of a plant-based bio-surfactant as a pharmaceutical product; A vaccine development strategy and the mRNA Vaccine Technology Transfer Hub; Capacity development for Historically Disadvantaged Individuals/Institutions (HDIs); A K-line imager advanced technology development; A sorghum cluster and agroprocessing facility and hub; and The Indigenous Knowledge (IK) Registration System.
Additional revenue raised by the Department comprised R1.09 million from surpluses on project funds, commission from Persal transactions, interest received from a deposit account at a commercial bank, payment of bursary debts and other recoverable expenditure.

The Department also received R69.8 million in donor funds from the European Union (EU) and spent R59.9 million of these funds.

3.2.

Vote 35: Science and Innovation 2021/22 Budget Expenditure The Department spent 99.5% (98.4% in 2020/21), i.e.
R8.9 billion of R9 billion (underspending of R43.6 million), of its 2021/22 budget.

Table 1 shows the expenditure by Programme and economic classification.

The material variance in expenditure per programme was due to Programme 1: Administration and was due to delays in filling prioritised positions.

Programme 1: Administration accounted for R23.9 million of the R43.6 million total under-expenditure for 2021/22, with the largest contributor being Compensation of employees at R17.6 million.
The 8 53 material variance in expenditure per economic classification attributed R30.5 million under- expenditure on Compensation of employees across all programmes, R5.7 million under- expenditure on Goods and services and R3.8 million under-expenditure on the Payments for capital assets, which was due to delays in finalising the procurement of laptops and tablets.

The under-expenditure on Transfers and subsidies comprised R1.6 million by Programme 4 and R2 million by Programme 5.
Table 1: Department of Science and Innovation’s 2021/22 Expenditure by Programme and Economic Classification Programme Final appropriation Actual expenditure R’000 Variance Expenditure as a % of final appropriation 1.

Administration 2.

Technology Innovation 3. International Cooperation and Resources 4.

Research, Development and Support 5.
Socioeconomic Innovation Partnerships Total Current payments Transfers and subsidies Payments for capital assets Payments for financial assets Total Source: 2021/22 Annual Report of the Department of Science and Innovation 3.3.
Auditor-General’s Report on the Financial Statements of the Department of Science and Innovation The AGSA awarded the Department an unqualified audit opinion with no findings; hence, a clean audit, for the fourth consecutive financial year.

The AGSA stated that no material findings on compliance with key legislation and no significant deficiencies in internal control were 9 54 identified.

In addition, The AGSA stated that, “The relevant role players within the accountability ecosystem (i.e.
the minister, accounting officer, audit committee and internal audit unit) provided the necessary assurance, which contributed to the sustained key internal controls, particularly those relating to leadership and governance”.

The Department did not incur any irregular expenditure or fruitless and wasteful expenditure in 2021/22.

Irregular expenditure relating to prior years and awaiting condonation by National Treasury amounted to R7.9 million.

4.
4.

2021/22 PERFORMANCE OF THE DEPARTMENT OF SCIENCE AND INNOVATION The Department captured its performance into 52 annual performance targets.

These were further broken-down into quarterly targets that were reported on when the Committee considered the Department’s quarterly financial and non-financial performance reports.
Table 2: 2021/22 Quarterly and Annual Programme Performance of the Department of Science and Innovation Quarter 1 Quarter 2 Quarter 3 Quarter 4 2021/22 Annual Performance) ü Ó ü Ó ü Ó 2 3 6 0 2 1 3 2 7 1 0 1 2 4 6 1 1 3 ü 4 11 4 Ó 1 1 5 ü 6 15 8 5 3 8 2 6 2 10 2 11 Programme 1.

Administration 2.

Technology Innovation 3. International Cooperation and Resources 4.

Research, Development and Support 5.


Socio- economic Innovation Partnerships 6 2 5 2 6 4 3 6 3 8 22 (69%) 10 35 (74%) 12 48 (92%) Total achieved and not achieved 22 (73%) 8 25 (81%) Ó 0 0 1 1 2 4 10 55 Total performance targets ü Achieved Ó Not achieved 30 31 32 47 52 For 2021/22, the Department achieved an overall performance of 92% (83% in 2020/211 and 87% in 2019/20), achieving 48 of its 52 performance targets (Table 2).
During the Committee’s assessment of the Department’s quarterly performance, attention was drawn to the negative trajectory in performance between the second and third quarters.

Although the decline was mostly ascribed to factors that were outside the Department’s span of control, the Committee nonetheless cautioned that due attention be given to ensure that the issues do not reoccur.

In relation to overall performance for 2021/22, the four targets that were not achieved are shown in Table 3.
Two of the performance targets, namely HDIs capacity building initiatives for international cooperation and pre-approval decisions for the R&D Tax Incentive, were not achieved in the previous financial year as well.
Programme Table 3: 2021/22 Performance Targets that were Not Achieved 2021/22 Reasons for variance Actual achievement 24 capacity building initiatives Planned performance target 32 capacity- building initiatives for international cooperation specifically targeting historically disadvantaged institutions and individuals by 31 Mar 2021, and by 31 March 2022.

No fewer than 6 200 pipeline postgraduate 3. International Cooperation and Resources 4.
Research, Development and Support A holistic strategic approach to the inclusion of historically disadvantaged institutions was not emphasised in engagements on international opportunities.

It is difficult to make accurate projections of Addressing underperformance The Programme has to improve its strategic approach towards the inclusion of historically disadvantages institutions in its engagements on international opportunities.
A conservative but reasonably fair target has been set 5 643 pipeline postgraduate 1 In 2020/21, the targets for bursaries awarded to doctoral students and pipeline postgraduate students had to be reported as not achieved in the Department’s 2020/21 Annual Report because the verification documents from the NRF were not available when performance was audited.
However, by the time the Department and the NRF reported to the Committee, the verification process was complete and confirmed that the planned number of bursaries had been awarded in both categories, increasing the Department’s overall performance from 83% to 87%.

11 56 Programme Actual achievement students were awarded bursaries.

Planned performance target students awarded bursaries annually as reflected in the reports from the NRF and other relevant entities by 31 Mar 2022.

5.
5.

Socio- economic Innovation Partnerships 287 high- level research students (of which 57 at PhD level) fully funded or co-funded in designated niche areas.

392 high-level research students (of which 57 at PhD level) fully funded or co-funded in designated niche areas (advanced manufacturing, aerospace, chemicals, mining, advanced metals, ICTs, the Industry Innovation Programme (incl.

SIFs and green economy) by 31 March 2022 (non- cumulative target).
2021/22 Reasons for variance the number of PhD students versus pipeline (honours and master’s) students to be supported as such numbers are ultimately dependent on the demand, i.e.

the number of applications in each category.

Significant funds from technology development projects (e.g.

the Advanced Metals Initiative and the Advanced Manufacturing Technology Strategy) were allocated to technology diffusion projects (e.g.
the Technology Stations Programme and the Technology Localisation Implementation Unit).

There were also difficulties in verifying the number of students.

Pre-approval decisions 54% (or 67) of 124 The quality of information Addressing underperformance for 2022/23, and more attention will be given to the pipeline (honours and master’s) bursary target than to the PhD bursary target, which was exceeded.
The planning process for the funding or co- funding of high- level research students in designated niche areas (advanced manufacturing, aerospace, chemicals, mining, advanced metals, ICTs, the Industry Innovation Programme (incl.

SIFs and green economy) will be improved with a greater emphasis on the breakdown of the key performance indicator target and of the technical indicator description definitions in the context of experienced validation difficulties.
To ensure turnaround times 12 57 Programme Planned performance target provided within 90 days from the date of receipt for 80% of the applications for the R&D Tax Incentive received between 1 Jan and 31 Dec 2021.

Actual achievement applications for the R&D Tax Incentive were provided with pre- approval decisions.

2021/22 Reasons for variance received from applicants is still problematic.

A lack of automation and staff shortages has an effect on the monitoring and processing of applications.
Addressing underperformance are adhered to, ensure that the R&D Tax Incentive pre- approval application process is automated and ensure that staff shortages are addressed by the better monitoring and processing of applications.
Source: 2021/22 Annual Report of the Department of Science and Innovation 4.1. Notable Achievements in 2021/22 • In relation to efforts to implement the 2019 STI White Paper and finalise the 2021-2031 STI Decadal Plan, the following milestones were achieved: o The first Interministerial Committee (IMC) on STI was held in November 2021 and the Ministers and Directors-General that were in attendance expressed their support for the STI Decadal Plan initiatives, and committed to working together to realise the vision of the STI White Paper.
o A number of engagements were held on the STI Public Budget Coordination Mechanism where the support of provincial governments for the principles of the budget coordination mechanism were obtained, and it was agreed that provinces would earmark the procurement of R&D by their own entities (rather than by consultants) as focus items for STI spending going forward.

• The Department has been supporting the development of domestic rocket engine technologies since 2010.
The Aerospace Systems Research Group at the University of KwaZulu-Natal spearheaded the development of rocket engine technologies in both liquid and solid rockets.

The Ablative Blow-down Liquid Engine (ABLE) was successfully tested in November 2021 at the Denel Overberg Test Range in the Western Cape.

The powerful liquid-propellant rocket engine is the first step towards locally developing a 13 58 launch vehicle for placing satellites into orbit.
Furthermore, ABLE is one of the most powerful student-built liquid rocket engines ever produced.

• Through The Grassroots Innovation Programme (GIP) and the Technology Acquisition and Deployment Fund (TADF), the Department facilitated access to multi-tiered support packages (including technology development, IP protection, mentorship, etc.)

for over 100 beneficiaries.


This support for the commercialisation of locally developed technologies and innovations by youth, women and people with disabilities, benefited unemployed graduates emerging as entrepreneurs.

The GIP launched 10 innovation products on the market.

The programme will now expand its offering to include GIP Robotics, GIP Enterprise and GIP Exchange, which will facilitate technology exchange between South African grassroots entrepreneurs and their Indian counterparts.
• A notable achievement in the year under review was the critical role played by the Department in positioning South Africa as the host for the mRNA Vaccine Technology Transfer Hub, an initiative of the World Health Organization in partnership with the South African and French governments and the Medicines Patent Pool.
The aim of the Hub is to diversify vaccine manufacturing and, specifically, to accelerate vaccine production in Africa, through a consortium made up of the Medicines Patent Pool, Biovac, Afrigen Biologics and Vaccines, the Department, the SAMRC, a network of universities and the Africa Centres for Disease Control and Prevention.
The main objective is to establish a training facility where mRNA vaccine technology is developed to the scale required for the mass production of vaccines, and for the full package of technology developed to be transferrable to multiple recipients in low and middle-income countries.

• To strengthen the use of IK for innovation, the Department and North-West University launched the IK Registration System in March 2022.

4.2.
4.2.

Auditor-General’s Test of the Performance Information of the Department of Science and Innovation The AGSA does not express an opinion or conclusion on the reported performance information.

Neither does the AGSA evaluate the completeness and appropriateness of the performance indicators.

However, the AGSA does test the usefulness and reliability of the reported 14 59 performance information for selected Programmes.

In this case, Programme 2: Technology Innovation was selected.
During the audit process, the AGSA identified material misstatements in the annual performance report of Programme 2: Technology Innovation.

However, since the Department’s management corrected these misstatements, the AGSA did not raise any material findings on the usefulness and reliability of the reported information for this Programme.

5.
5.

ENTITIES OF THE DEPARTMENT OF SCIENCE AND INNOVATION The Department’s entities are funded through an annual baseline allocation also known as the parliamentary grant; specific project and/or contract funds; or from income that is generated from research and commissioned projects; or from income that is generated from royalty, publishing, membership, registration and/or facility fees.
For the current reporting period, the Committee considered the 2021/22 Annual Reports of the CSIR, HSRC, NRF, SANSA and TIA.
Table 4: 2021/22 Departmental transfers and performance summary of the entities of the Department of Science and Innovation Entity Departmental transfer R’000 Performance Audit outcome 2020/21 2021/22 2020/21 2021/22 2020/21 2021/22 Council for Scientific and Industrial Research Human Sciences Research Council National Research Foundation South African National Space Agency Technology Innovation Agency Unqualified with no findings Unqualified with no findings Unqualified with findings Qualified with findings Unqualified with no findings Unqualified with no findings Unqualified with findings Unqualified with no findings Unqualified with no findings Unqualified with no findings 15 60 Entity Departmental transfer R’000 Performance Audit outcome 2020/21 2021/22 2020/21 2021/22 2020/21 Total 2 637 236 2 938 536 Average (84%) Average (85%) 3 of the 5 obtained clean audits 2021/22 4 of the 5 obtained clean audits and 1 regressed 5.1.
COUNCIL FOR SCIENTIFIC AND INDUSTRIAL RESEARCH The CSIR’s mandate is to foster, through directed and multidisciplinary research and technological innovation, industrial and scientific development.

As such, the CSIR researches, develops, localises and diffuses technologies to accelerate socio-economic prosperity in South Africa.

The CSIR’s current strategy, named Project Synapse, responds to global and local socio- economic and technological megatrends and South Africa’s challenges and opportunities.
Project Synapse defines technology sector clusters that seek to balance scientific and industrial development by intensifying industrial development in priority, high-impact economic sectors through RDI.
Project Synapse defines priority industries as those industries that: • Present the greatest potential for socio-economic impact according to a robust set of economic and social criteria that are both forward looking and reflective of the current status; and • Dependent on R&D, are amenable to stimulation through innovation, and thus offer opportunities for the CSIR to pursue.
In line with the intent of Project Synapse, the CSIR value proposition includes: • • • • • • Technology licensing and start-up creation; Access to specialised, state of the art infrastructure, skills and technology incubation; Innovation support; Improvement of industry competitiveness; New industry creation; Technology localisation and supplier development; and 16 61 • Community-based industry creation.

5.1.1.
5.1.1.

2021/22 Revenue The CSIR’s total revenue was R2.65 billion (R2.57 billion in 2020/21 and R2.76 billion in 2019/20), which was 8% less than the target set.

The net profit of R137 million exceeded the budget estimate by R233 million since the CSIR projected that it would suffer a R96 million loss in 2021/22.

Contract revenue was R1.92 billion (R1.91 billion in 2020/21) and the parliamentary grant was R730.3 million (R670 million in 2020/21).
Royalty revenue was R7.4 million (R2.6 million in 2020/21).

The largest portion of the CSIR’s revenue, at 56%, was contract R&D from the public sector, followed by the parliamentary grant at 27%.

Private sector and international contract revenues were 9% (13% in 2020/21) and 8% (5% in 2020/21) respectively.

The CSIR improved its B- BBEE rating level, moving from level 2 to level 1, which is currently the best among public sector entities.
The CSIR identified the following factors, which constrained its ability to earn revenue: • Reduction in contract R&D revenue because of continuing adverse economic conditions due to the ongoing COVID-19 pandemic, resulting in parts of the business not being fully operational, for example, the CSIR International Convention Centre.

• Reduced level of productivity due to the ongoing COVID-19 pandemic earlier in the financial year.
• Key contracts with the public sector were not secured, for example, contracts with Armscor/Department of Defence and Department of Correctional Services in the Defence and Security cluster.

Delays in securing large-value contracts, such as a contract for the Titanium Centre of Competence and the National Foundry Technology Network.
• Lease agreements with proposed tenants for vacant space were not secured as planned due to working from home arrangements because of the COVID-19 pandemic, which diminished the need for office space.

• Delays in the acquisition of equipment funded by public sector funding (this also resulted in lower than planned depreciation expenses).

17 62 • The electricity crisis affected wind tunnel testing and the ability to earn revenue from this facility during periods of constrained energy supply.
• Moreover, National Treasury Regulations make it increasingly difficult for public entities to contract directly with government and state-owned enterprises for mandated work.

Public institutions require the CSIR to compete for R&D activities in open tenders, which, as a public entity mandated to perform this type of work, should not be the case.

This practice leads to the loss of revenue opportunities of approximately R450 million, every year.

5.1.2.
5.1.2.

2021/22 Performance Overall, the CSIR achieved or exceeded 25 of the 31 (81%) key performance indicators (KPIs) for the 2021/22 financial year (80% in 2020/21).
Compared to the previous financial year, selected performance highlights included: • • • • • A 40% increase in priority patent applications; A 15% increase in the number of technology demonstrators; A 300% increase in the number of technology licence agreements; A 180% increase in the number of localised technologies; A 3% increase in the number of small, medium and micro enterprises (SMMEs) supported; • The number of projects that contributed to increasing the capability of the state increased by 95%; • • The science, engineering and technology (SET) base increased by 5.2%; The number of exchange programmes with industry increased by 287.5%, in line with the intention to work more closely with industry.
In relation to its five Strategic Outcomes (SO), the CSIR recorded the following achievement: SO1: Conduct RDI of transformative technologies and accelerate their diffusion The CSIR achieved three of the five performance indicators.

As in 2020/21, the CSIR did not achieve the target for the number of technology licence agreements signed (12 instead of 19).

This was due to delays in negotiating new licence agreements between the CSIR and its 18 63 partners.
The target for new priority patent applications filed (seven instead of nine) was also not met due to pipeline issues.

SO2: Collaboratively improve the competitiveness of high-impact industries to support South Africa’s re-industrialisation The CSIR exceeded all three performance indicators, demonstrating its commitment to support re-industrialisation through technology support.
SO3: Drive socio-economic transformation through RDI that supports the development of a capable state The CSIR met all three performance indicators that contribute to the support of a capable state.

SO4: Build and transform human capital and infrastructure SO4 comprised 12 performance indicators, of which five were exceeded, four were achieved and three were not achieved.
The targets that were not achieved included the percentage of SET staff who hold a PhD degree, the total number of chief researchers and the percentage of chief researchers who are female.

To mitigate against these matters, the CSIR undertook to increase recruitment efforts and implement a career ladder process to curb the regression.
SO5: Diversify income and maintain financial sustainability and good governance SO5 comprised eight performance indicators, of which four were exceeded, three were achieved and one was not achieved.

The target for total income realised was not achieved, falling 8% short of the target set.

The CSIR identified the following areas of improvement: • The CSIR needs to ensure that it has a strong pipeline of priority patent applications to support the growth in patents granted.
More importantly, the CSIR must monetise this IP through licensing and other means of commercialisation.

• The growth and transformation of the principal and chief researcher pools remain a challenge and despite implementing various initiatives, progress is slow.

As such, the CSIR created a strategic fund to attract chief and principal researchers to the organisation.
19 64 • In its efforts to diversify its income streams, the CSIR is seeing improvement in its private sector contract R&D; however, the pace of growth remains slow.

The constrained economic environment is a major contributing factor to this performance.

5.1.3.

2021/22 Audit Outcome The AGSA selected SO1 – Conduct RDI of transformative technologies and accelerate their diffusion, to test the usefulness and reliability of the reported performance information.
The AGSA did not raise any material findings on the usefulness and reliability of the reported information for this strategic outcome.

The AGSA awarded the CSIR an unqualified audit opinion with no findings; hence, a clean audit, for the fourteenth consecutive financial year.

The AGSA stated that no material findings on compliance with key legislation and no significant deficiencies in internal control were identified.
In addition, the AGSA stated that, “The relevant role players within the accountability ecosystem provided the necessary assurance, which contributed to the sustained key internal controls, particularly those relating to leadership and governance”.

Furthermore, the AGSA stated that, “Management and the accounting authority enforced preventative controls and consequence management, which resulted in sustainable audit outcomes”.
The CSIR incurred irregular expenditure of R3.7 million due to nine incidences of non- compliance with supply chain management regulations, three of which were committed prior to 2021/22.

At the time of reporting, management was effecting consequence management against the officials who committed the offences.

In all instances, no loss was suffered by the CSIR.

The CSIR incurred R17 000 in fruitless and wasteful expenditure due to legal costs incurred from the late payment of a supplier.

5.2.
5.2.

HUMAN SCIENCES RESEARCH COUNCIL The HSRC is mandated to: a) Initiate, undertake and foster strategic basic and applied research in human sciences.

Address developmental challenges in the Republic, elsewhere in Africa and in the rest of the world.

20 65 b) Inform the effective formulation and monitoring of policy, as well as evaluate the implementation thereof.

c) Stimulate public debate through the effective dissemination of fact-based research results.
d) Help build research capacity and infrastructure for the human sciences.

e) f) Foster research collaboration, networks and institutional linkages.

Respond to the needs of vulnerable and marginalised groups in society through research and analysis of developmental issues.

g) Develop and make available data sets underpinning research, policy development and public discussion of developmental issues.

h) Develop new and improved methodologies for use in the development of such data sets.
The HSRC continued its focus on poverty and inequality over the current five-year strategic plan period.

Through its vision of being a national, regional and global leader in the production and dissemination of transformative social science and humanities research in the interests of a just and equal society, the HSRC carried out research-based services to inform government planning, policy and development.
It provided advice and analysis to government and stakeholders on various issues, drawing from a humanities and social sciences perspective.

A new HSRC Board, comprising 11 members and under the leadership of Dr Cassius Lubisi, took office on 1 November 2021.

In his foreword to the 2021/22 Annual Report, Dr Lubisi stated that on assuming office, three priorities demanded the Board’s immediate attention.
These were: • The previous Board could not fill the position of Chief Executive Officer (CEO), which has been vacant since April 2021.

The new Board commenced with a renewed recruitment process and it is expected that the CEO position will be filled in the current financial year.

• HSRC staff had endured significant emotional and financial hardship for the past three years, as cost-of-living adjustments or performance-based increases were disallowed for several years.
Following extensive consultation with the Executive Authority, National Treasury and independent senior counsel, the new Board was able to implement modest cost-of-living adjustments to bring much needed relief and an improvement in staff morale.

21 66 • It emerged in 2020 that a deviation from the prevailing tax legislation occurred during a payroll system transition in 2016.
Because of a human and system programming error, the requisite tax on unapproved risk policies attached to the HSRC Pension Fund was not paid to SARS.

This anomaly was identified by management and when reported to the Board in August 2020, was corrected immediately.

A process for calculating the outstanding liability was concluded and a process of applying for Voluntary Disclosure Relief from SARS is underway.

5.2.1.
5.2.1.

2021/22 Revenue The current financial model of the HSRC depends significantly on external funding to support research and the broader mandate of the HSRC.

There is continued pressure on the HSRC to increase external income earnings at a faster pace than the growth in its parliamentary grant, to ensure that all necessary budget commitments in terms of staff, administration, infrastructure and research can be met.
Hence, the HSRC’s view that, “The declining Parliamentary Grant continues to constrain, rather than facilitate the HSRC’s mandate”.

In mitigation, the HSRC will review its funding strategies and explore opportunities to unlock funding as part of its shift in focus from research generation to research use.

Total revenue for 2021/22 was R588.9 million with the parliamentary grant constituting R273.4 million (46%) of the total revenue.
Research revenue was R280.1 million and other operating revenue was R35.5 million.

Programme 1: Administration was allocated R242.9 million (42%) of the total budget and spent R180.9 million, where salaries constituted R101.5 million (R27 million less than planned) of the expenditure.

Programme 2: Research, Development and Innovation was allocated R339.2 million (58%) of the total budget and spent R362.4 million, overspending by R23.3 million because of increased research activities undertaken.
The HSRC reported a surplus of R45 million at the end of the 2021/22 financial year.

The surplus was primarily due to a significant decrease in the administration and operating costs of the HSRC.

The completion of project activities and milestones on several large-scale projects enabled the HSRC to exceed its external income target by 22%.

Hence, research costs and depreciation expenses were above the budgeted amounts because of increased research activities during the financial year.

22 67 5.2.2.
22 67 5.2.2.

2021/22 Performance The HSRC pursues its research agenda within five strategic outcomes, summarised in the acronym “LeaPPT+S”.

This stands for Leadership in knowledge production, Policy influence, Partnerships, Transformed research capabilities and Sustainability.

The HSRC’s five strategic outcomes are implemented across two programmes; namely, Programme 1: Administration and Programme 2: Research, Development and Innovation.
Programme 1: Administration The Administration Programme is responsible for the strategic direction and overall management of the HSRC.

An Impact Centre was established in 2020 to focus on enhancing the use and impact of the HSRC’s research.

Programme 1 achieved 10 of its 11 performance indicators.

The target on the percentage of researchers with PhDs (planned for 76% and attained 69%) was not met during the reporting period.
The variance in achievement was attributed to staff-turnover and project-specific recruitment of lower-level research staff.

Furthermore, the HSRC faces the challenge of a limited number of senior researchers who are required not only to raise funds, but also to implement a range of contract research projects, and reach scholarship targets.
As was highlighted in all previous institutional reviews, the HSRC needs to employ more senior researchers on permanent conditions of service to ease the burden of fund raising, and to provide reliable mentoring to its research trainees.

However, filling the vacancies for senior research staff has been constrained by salary caps implemented by National Treasury and further reductions in the allocation for the Compensation of employees.
The HSRC competes with the market for these in-demand, high-level skills and cannot offer market-related competitive salaries or, until February 2022, permanent positions.

Programme 2: Research, Development and Innovation This programme conducts basic and applied research, generating and applying knowledge that addresses and provides deeper insights into some of the challenges that society is grappling with.
Programme 2 includes the Africa Institute of South Africa (AISA), the Centre for Community-based Research in Sweetwaters, Pietermaritzburg and the Centre for Science, Technology and Innovation Indicators (CeSTII).

23 68 Programme 2 achieved nine of its 10 performance indicators.

The target of 47 book chapters published (actual achievement 40 book chapters) was not met.
One of the contributing factors is that the book publication process is lengthy and is dependent on many factors, most of which are beyond the control of the HSRC.

Overall, in 2021/22, the HSRC maintained its previous performance and achieved 19 of its 21 (90%) performance indicators.

5.2.3.

2021/22 Audit Outcome The AGSA selected Programme 2: Research, Development and Innovation, to test the usefulness and reliability of the reported performance information.
The AG did not raise any material findings on the usefulness and reliability of the reported information for this Programme.

The AGSA awarded the HSRC a qualified audit opinion with findings, a regression from last year’s unqualified audit opinion with findings.

The basis for the qualified audit opinion stemmed from the HSRC not accurately recording leave accrual in the financial statements.

Consequently, leave accrual was understated by R11.3 million.
The matter arose because the HSRC did not implement manual reconciliation processes to confirm that its systems produced information that was valid, accurate and complete.

Furthermore, the AGSA identified weaknesses relating to the design and/or implementation of controls in the focus areas of security management, user access management, physical and environmental controls, and IT service continuity, which could have a direct impact on the entity’s business operations.
The AGSA recorded findings in relation to non-compliance with selected legislative prescripts where the HSRC submitted financial statements that were not prepared in accordance with the prescribed financial reporting framework and supported by full and proper records.
Furthermore, in relation to procurement and contract management, some of the invitations for competitive bidding were not advertised for the required minimum period, and there was no evidence that bid documentation and invitations to tender for procurement of commodities designated for local content and production stipulated the minimum threshold for local production and content.
Finally, the AGSA could not obtain sufficient and appropriate audit 24 69 evidence that disciplinary steps were taken against officials who had incurred irregular expenditure because investigations into irregular expenditure were not performed.

These instances also led the AGSA to a finding that there were deficiencies in internal control.
The HSRC incurred irregular expenditure of R792 000 in the current financial year and R19.6 million identified in the current financial year but incurred during 2020/21.

The HSRC incurred R15.9 million irregular expenditure in 2020/21.

The HSRC incurred fruitless and wasteful expenditure of R14 000 (R27 000 in 2020/21 for the same reasons provided) due to staff members missing flights and incurring traffic fines.

These monies will be recovered from staff.

5.3.
NATIONAL RESEARCH FOUNDATION The objective of the NRF is to contribute to national development by: a) Supporting, promoting and advancing research and human capacity development, through funding and the provision of the necessary research infrastructure, to facilitate the creation of knowledge, innovation and development in all fields of science and technology, including the humanities, social sciences and IK; b) Developing, supporting and maintaining national research facilities; c) d) Supporting and promoting public awareness of, and engagement with, science; and Promoting the development and maintenance of the national science system.
The strategic outcomes of the NRF are: Outcome 1: A transformed, internationally competitive and sustainable research workforce; Outcome 2: Enhanced impact of the research enterprise; Outcome 3: Enhanced impact of Science Engagement; and Outcome 4: A transformed organisation that lives its culture and values.

5.3.1.
5.3.1.

2021/22 Revenue 25 70 The NRF mainly derived its income from the parliamentary grant (R962.6 million), Departmental contracts (R3 billion), other contract income (R350 million), sales revenue (R94.8 million) and interest received (R40 million).

The NRF’s total income increased by 25% from R3.6 billion in 2020/21 to R4.5 billion in 2021/22, but was still approximately R464 million less than originally budgeted.
The overall decline of the NRF’s budget continued, which translated to lower than needed investment, which in turn translated to slower impact.

The NRF’s total expenditure increased by 24% from R3.6 billion in 2020/21 to R4.2 billion in 2021/22 and was mainly attributed to a significant recovery in operational activity as COVID- 19 restrictions eased and normality returned.

The NRF reported an accumulated surplus of R7.3 million.
Grants, bursaries and other research expenditure increased by 14% from R2.1 billion to R2.4 billion and were attributed to the National Equipment Programme as this funding is received every alternate year.

Programme and operating expenditure was R973 million and expenditure on staff salaries and wages was R717 million.
The increase in operating expenditure was due to the return to a stable level of operations, while the payment of South Africa’s membership contribution to the SKA Observatory (SKAO) increased expenditure by R275 million.

Capital expenditure increased by R291 million as spending aligned to delivery on the South African Isotope Facility (SAIF) 70 MeV cyclotron and the MeerKAT extension project ramped up.
To ensure operational and financial sustainability, the NRF contained it overheads expenditure below the 10% threshold, decreasing from 9.5% in 2020/21 to 7.9% in 2021/22.

5.3.2.

2021/22 Performance The NRF is organised into four programmes, which together record progress against the NRF’s strategic outcomes.

The programmes are: Programme 1: Corporate – provides enabling systems and structures that support effective and efficient governance, strategy and planning capacity, and shared services.
26 71 Programme 2: Science Engagement - leads and coordinates the discourse on science with and for society and supports the national imperative of developing a scientifically literate society.

Programme 3: Research and Innovation Support and Advancement (RISA) - supports and promotes research through the development of human capacity, the generation of knowledge, and the provision of, and access to, cutting-edge research infrastructure.
Programme 4: National Research Infrastructure Platforms (NRIP) - provides leading-edge research infrastructure platforms in support of knowledge generation, innovation and human capacity development.

These Programmes contribute to the NRF’s four strategic outcomes against which performance is measured.

Overall, the NRF achieved or exceeded 13 of its 18 (72%) performance indicators.
The targets that were not achieved are: Programme 2: Science Engagement The target for the number of scientists/journalists that used indigenous languages in science communication was 320.

The actual achievement was 156.

This is a new area of focus for the NRF; hence, this is designated as a stretch target where performance gradually improves.

Programme 3: Research and Innovation Support and Advancement The target for the number of NRF-funded researchers was 4 521.
The actual achievement was 3 201 due to lower demand for a number of funding instruments.

The target for the number of peer-reviewed publications produced by NRF-funded researchers was 9 250.

The actual achievement was 9 116 due to researchers undertaking fewer field trips and attending fewer international conferences and workshops due to the COVID-19 restrictions; hence fewer papers were produced.
Programme 4: National Research Infrastructure Platforms The target for the proportion of South African researchers from designated groups who use the National Facilities (NFs) was 39%.

The actual achievement was 11% due to the NFs systems not being designed to collect this data from users.

27 72 The target for the number of Southern African Large Telescope (SALT) Gen1.5 subprojects being implemented was four.

The actual achievement was three due to the SALT Board suspending one project.
The underachievement against these targets will be mitigated as follows: Programme 2: Science Engagement – KPIs for the next reporting cycle were reviewed in consultation with the Department to measure output that is within the control of the NRF.

Programme 3: Research and Innovation Support and Advancement - targets for funded researchers will be adjusted in line with the available budget and baseline performance over the past three financial years.
The peer-reviewed publications’ KPI, although a significant measure of performance for the NRF, is not within its direct control.

Hence, the output was removed from the 2022/23 Annual Performance Plan.

Publications will; however, still be tracked by the NRF as an outcome of the NRF’s investment into the NSI.
Programme 4: National Research Infrastructure Platforms - The NRF has adopted a POPIA Policy that will guide the NFs on the lawful collection and processing of personal information of users of the Research Infrastructure Platforms.

Notable progress was achieved against specific strategic measures.

These included: • • Successful implementation of the DSI-NRF Postgraduate Student Funding Policy.

The Engaged Research Framework was adopted in March 2022.
The Framework provides for an ongoing process of embedding Science Engagement more holistically within NRF programmes and enabling engaged scholarship.

• The Leading Researchers and Scholars Programme (LRSP) was developed in consultation with the Department and the first call for applications was expected during 2022/23.
• The NRF developed the Framework to Advance the Societal and Knowledge Impact of Research and the consolidated NRF Impact Implementation Plan was completed at the end of 2021/22, for execution in 2022/23.

• The overall implementation progress for the SAIF at iThemba LABS reached 75%.

28 73 5.3.3.

2021/22 Audit Outcome The AGSA selected Programme 3 – Research and Innovation Support and Advancement, to test the usefulness and reliability of the reported performance information.
The AGSA did not raise any material findings on the usefulness and reliability of the reported information for this Programme.

The AGSA awarded the NRF an unqualified audit opinion with no findings; hence, a clean audit, for the third consecutive financial year.

The AGSA further stated that no material findings on compliance with key legislation and no significant deficiencies in internal control were identified.
In addition, the AGSA stated that, “The relevant role players within the accountability ecosystem provided the necessary assurance, which contributed to the sustained key internal controls, particularly those relating to leadership and governance”.

The NRF did not incur any irregular expenditure or fruitless and wasteful expenditure in 2021/22.

On 26 July 2022, the NRF Board approved that irregular expenditure of R12.9 million relating to 2020/21 be removed from the Annual Financial Statements.

5.4.
5.4.

SOUTH AFRICAN NATIONAL SPACE AGENCY The legislative mandate of SANSA is premised on two primary Acts; namely, the Space Affairs Act (No.

84 of 1993) and the South African National Space Agency Act (No.

36 of 2008).
36 of 2008).

The former, an instrument of the Department of Trade, Industry and Competition, caters for the regulatory/policy context for the South African space programme; whereas the latter, an instrument of the Department, enables the establishment of SANSA as an implementing agency for the South African space programme.
The National Space Strategy and the South African Earth Observation Systems (SAEOS) Strategy provide edicts that directly inform the operationalisation of the South African space programme, inclusive of the role that SANSA should play.

During the first eight years of SANSA’s operations, its Strategic and Annual Performance Plans were aligned to the budgetary allocations for both its internal business operations and broader support to the local space sector.
This approach imposed limitations on SANSA’s planned and 29 74 implemented scope of initiatives.

With its revised 2020-2025 Strategic Plan, SANSA seeks to ensure that the South African space sector is able to develop and compete globally, and that it responds to the critical needs of its user community, primarily represented by all spheres of government.

5.4.1.
5.4.1.

2021/22 Revenue SANSA’s total revenue was R332.8 million, with Transfers and grants constituting R249.8 million and the parliamentary grant of R181.3 million constituting 54.5% of total revenue.

Contract revenue was R83 million, which was R11.7 million more than was budgeted.
This increase was mainly attributed to additional foreign revenue earned through Space Operations from Intelsat (multinational satellite services provider) and Paneos (antenna for the detection and monitoring of space debris).

Total expenditure was R347 million and personnel expenditure accounted for 44% of total expenditure due to the high-level, scarce skills needed by SANSA.

SANSA identified several key infrastructure projects with an estimated value of R4.54 billion.
The major infrastructure project is the development of the Space Infrastructure Hub for which the feasibility study was concluded in this financial year.

SANSA is also constructing a regional 24-hour Space Weather Operational Centre, which was 70% completed at the end of the financial period under review.

5.4.2.

2021/22 Performance SANSA has five programmes; namely, Administration, Earth Observation, Space Operations, Space Science and Space Engineering.
These Programmes contribute to the following six strategic outcomes against which performance was measured: Outcome 1: Increased space relevant knowledge that supports the developmental agenda; Outcome 2: Growth of the space sector through SANSA space related industry expenditure; Outcome 3: Increased human capacity for the implementation of key space initiatives; Outcome 4: SANSA positioned as a key enabler of government’s space related policies; Outcome 5: Appropriate infrastructure developed to support the local space sector; and Outcome 6: Increased share of the global space operations market.
30 75 SANSA achieved an overall performance of 94% for the 2021/22 financial year (82% in 2020/21).

Programme 1: Administration – Many initiatives were undertaken in relation to new business development, stakeholder engagement and communication.

However, neither the Skills Audit nor Workforce Plan, which were the measurable performance targets, was concluded.

This was due to the Skills Audit project only being launched in January 2022, with the Workforce Plan being a deliverable of this project.
Programme 2: Earth Observation – Met all 12 measurable performance targets.

Programme 3: Space Science – Met all nine measurable performance targets.

Programme 4: Space Operations – Met all three measurable performance targets.

Programme 5: Space Engineering – Met three of the seven measurable performance targets.
The targets that were not met are: • The percentage (20%) contract expenditure to small and medium enterprises (SMEs), and contract expenditure to broad space industry (R10 million) due to the ongoing negotiations around the transfer of the Houwteq Assembly Integration and Testing (AIT) facility from Denel to SANSA.

The expenditure would have been towards the upgrade of the facility.

• The targets (one each) set for activities initiated through African and National partnerships.
Work on these initiatives is still pending.

Selected performance highlights included: • SANSA was appointed as the host of the Digital Earth Africa Programme Management Office to amplify the value of Earth Observations for the continent.

• SANSA has expertise in the entire space value chain from research, to development, to application and its research can be placed in the top 10% of research output when compared to South African universities.
31 76 • The SANSA Hermanus Facility achieved ISO 9001:2015 certification for its products and services, which was one of the requirements of the International Civil Aviation Organisation upon designating SANSA as a regional Space Weather Centre for the aviation industry.

• • SANSA engaged 22 224 youth through its space awareness initiatives.

SANSA supported 86 students and interns versus the targeted 50.
SANSA stated that the risks to its operations and performance were characterised by the following: Completion of the EO-Sat1 satellite build programme A proposal describing the EO-Sat1 contracting history, current stakeholder environment and two options on how to proceed was submitted and accepted by the SANSA Board for submission to the Department’s Director General (DG).
In parallel to the proposal, SANSA’s Board supported the consolidation and closeout of all lapsed, existing related contracts with Denel Spaceteq, the main build contractor, to establish a clean contractual baseline for the future.

The project was placed on hold in the 2018/19 financial year pending the sourcing of additional funding to complete the project.
Transfer the ownership of the Houwteq facility from Denel to SANSA The prolonged delay relating to the transfer of the Houwteq facility from Denel to SANSA has negatively affected the establishment of an Assembly, Integration and Testing (AIT) facility to ensure the provision of relevant support to industry.
There are still risks associated with shifts in the industry’s current usage of Houwteq and industry requirements will need to be monitored closely; especially since Denel’s call to mothball the facility.

Suboptimal funding levels The allocated budget for SANSA remains suboptimal and it needs to seek additional funding to be able to fulfil its mandate.

Some of these funding commitments include investor funding, which require SANSA to be able to borrow.
This has implications for SANSA’s future operating model and its’ functioning as a Schedule 3A entity.

Protection of SANSA sites 32 77 SANSA is experiencing interference relating to its operational activities, both from radio frequency interference (RFI) and magnetic interference.

Interventions in this regard include declaring some of the sites as National Key Points and instituting regulatory reforms to protect these sites.

5.4.3.
5.4.3.

2021/22 Audit Outcome The independent auditor, Nexia SAB&T, does not express an opinion or conclusion on the reported performance information.

Neither does the auditor evaluate the completeness and appropriateness of the performance indicators.

However, the auditor does test the usefulness and reliability of the reported performance information for selected Outcomes.

In this case, Outcome 4: SANSA positioned as a key enabler of government’s space related policies, was selected.
The auditor did not raise any material findings on the usefulness and reliability of the reported information for this Outcome.

SANSA has resolved all matters that resulted in audit findings in the previous two years.

Hence, the independent auditor awarded SANSA an unqualified audit opinion with no findings, a clean audit.

The auditor further stated that no material findings on compliance with key legislation and no significant deficiencies in internal control were identified.
SANSA incurred irregular expenditure of R1.7 million because a supplier omitted to complete its declaration of interest.

SANSA did not suffer financial loss, and there was no fruitless and wasteful expenditure noted on this transaction as all goods and services were required by SANSA.

5.5.

TECHNOLOGY INNOVATION AGENCY It is the mandate of TIA to translate a greater proportion of publicly funded research into commercial technology products and services.
This implies exploiting the existing body of knowledge at universities and public research organisations, and channelling it towards the development of technology-based industries.

This is done with the intention of creating sustainable jobs and transforming the economy from one that is reliant on commodity exports to one that is knowledge-based and equipped to address modern local and global challenges.
33 78 A critical review of TIA’s execution of its core mandate revealed that TIA has supported a large number of innovations.

However, the translation and commercialisation success rate has been suboptimal.

Hence, TIA aims to reposition itself strategically within the NSI by directing a greater proportion of its resources towards the translation and commercialisation of publicly financed IP emanating from higher education institutions and science councils.
Consequently, TIA’s 2021/22 Annual Report shows that the proportion of its budget allocated to publicly funded beneficiaries increased from 57% to 75% (amounting to R280.9 million).

The 2020-2025 strategic focus of TIA hinges on three core pillars/outcomes: Outcome 1: Commercialising innovations – TIA has a significant portfolio of de-risked, early-stage technologies for investors to commercialise.
Outcome 2: Delivering on the Bio-economy Strategy by targeting the Health, IK, Agriculture and Industrial Biotechnology sectors.

Outcome 3: Increasing the participation of entrepreneurs and innovators, and supporting SMMEs in technological innovation - Providing access to key infrastructure capabilities such as the Technology Stations and other innovation-enabling interventions.

5.5.1.
5.5.1.

2021/22 Revenue Total revenue was R633.9 million, with the parliamentary grant constituting R447.7 million of the total revenue.

Total expenditure for the year was R611.3 million, which was R39.1 million higher than budgeted for.

This was due to higher than projected investment expenditure of R52.2 million offset by savings in operational expenditure.

Total disbursements amounted to R458.9 million, representing a 9.4% increase on 2020/21.
These comprised R86 million for commercialising innovations, R221.5 million for the Bio-economy Strategy and R151.3 million for innovation enabling initiatives.

For the third consecutive financial year, TIA dispersed more than 90% of its MTEF allocation.

TIA realised an actual surplus of R22.6 million, which was largely attributed to a combination of greater income generated, lower than anticipated investment expenditure and savings on operational expenditure.
The 2021/22 financial year represented the first phase of the 3-year pilot of the Innovation Fund, a R150 million instrument of the Department aimed at enhancing and accelerating the rate of commercialisation of locally developed technologies.

TIA is one of the implementing partners 34 79 along with the SA SME Fund, the Public Investment Corporation and the Industrial Development Corporation.
TIA received R80 million, with 87.5% of this successfully committed to approved projects and R25.2 million disbursed to project recipients.

Under this fund, TIA concluded agreements with nine projects under the Bio-economy portfolio by the end of 2021/22.

These included six IK-related projects with a total value of R40.5 million under the Natural Indigenous Products Programme (NIPP) Fund.

The NIPP fund was established to advance the development and commercialisation of IK.
A total of R31.4 million was disbursed to projects in 2021/22.

For the Commercialisation portfolio, TIA concluded agreements with five projects (Pelebox, Riot and Lepsta in the ICT portfolio and Settlebed detector and Smartsensor in the Natural Resources portfolio) totalling R21.5 million, with R15.9 million disbursed in 2021/22.

In addition, a further R10.5 million was disbursed to the University Technology Fund.
TIA has been entrusted with a further R102.2 million to implement phase two of the Innovation Fund.

5.5.2.

2021/22 Performance For 2021/22, TIA achieved 19 of its 22 annual performance indicators, which equates to an overall performance of 86% (90% in 2020/21).

Of the 22 annual output indicators, nine related to support services and 13 to delivering on TIA’s core mandate.

The three targets that were not achieved and the one partially achieved target are shown in Table 5.
Table 5: 2021/22 Performance indicators that were not achieved by TIA Output indicator Planned target Actual Achievement Reason for variance Outcome 2: Delivering on the Bio-economy Strategy Number of existing Technology Innovation Clusters that are operational and functional.

8 7 TIA did not achieve this target due to not funding concluding agreements and associated business funding plans and proposals with the Dairy Genomics Programme and the Genomics Beef Programme.
In the former instance, the industry association declined to commit to transformation 35 80 Output indicator Planned target Actual Achievement Reason for variance targets.

In the latter several instance, remained matters unresolved despite several engagements the respective with science council.

Outcome 3: SMMEs supported through strategically informed and regionally distributed Technology Stations Number of SMMEs cooperatives and receiving SET support.
3 500 3 167 Administration performance targets on Improve investment decision turnaround times.

Achieve a 4-week turnaround time on investment process for funding <R1 applications million by 31 March 2022.

Achieve a 15-week turnaround time on investment process funding for applications R1 million - R15 million by 31 March 2022.

Achieve a 26-week turnaround time on investment process for funding applications >R15 million by 31 March 2022.
Achieved an average 18.9-week turnaround time on investment process funding for applications <R1 million by 31 March 2022.

Achieved an average 19.6-week turnaround time on investment process funding for applications R1 million - R15 million by 31 March 2022. funding For applications >R15 million received in the year no decisions had been taken by 31 March 2022.

Partially achieved.
Partially achieved.

TIA’s annual performance is 90% of the annual target of 3 500, which is acceptable deemed to according the indicator technical description for this output indicator per TIA’s 2021/22 Annual Performance Plan.

to TIA did not meet its time turnaround targets due its approval complex These processes.

addressed matters and average turnaround time was to reduced approximately 19 weeks.

the 36 81 Output indicator Planned target Black youth-owned businesses: 10%.
Support women- and youth-owned businesses procurement initiatives.

through Actual Achievement Black youth-owned businesses: 7.4%.

Reason for variance focussed Despite procurement initiatives, from procurement black youth-owned businesses was lower than the annual target.

This was attributed to continuation of existing contracts and the specialised nature of procurement in some cases wherein suppliers with youth ownership are limited.
In relation to targets servicing TIA’s core mandate, TIA met or exceeded performance targets in terms of: the number of technologies licensed or assigned, technologies diffused, knowledge and innovation products produced, postgraduate students and postdoctoral fellows supported, SET support provided to SMMEs, existing Technology Platforms and Technology Stations managed and supported, and new Technology Platforms established.
TIA overachieved against the annual targets for the number of products launched (37 against a target of 22), bio-based technologies developed (36 against a target of 15), joint collaborations (34 against a target of 15) and leveraged funds (R755.5 million against a target of R239 million).

TIA also established three new technology transfer centres although none was planned.

5.5.3.
5.5.3.

2021/22 Audit Outcome The independent auditor, Rakoma and Associates Incorporated, does not express an opinion or conclusion on the reported performance information.

Neither does the auditor evaluate the completeness and appropriateness of the performance indicators.

However, the auditor does test the usefulness and reliability of the reported performance information for selected Outcomes.

In this case, Outcome 1: Commercialised Innovations, was selected.
The auditor did not raise any material findings on the usefulness and reliability of the reported information for this Outcome.

37 82 The independent auditor awarded TIA an unqualified audit opinion with no findings; hence, a clean audit for the third consecutive financial year.

The auditor further stated that no material findings on compliance with key legislation and no significant deficiencies in internal control were identified.
TIA incurred R292 000 in irregular expenditure in 2021/22, which related to the manner in which the former interim CEO was appointed and the remuneration paid for services rendered in this capacity.

Prior year’s irregular expenditure amounted to R11.6 million.

TIA did not incur any fruitless and wasteful expenditure in 2021/22.

6.
6.

OVERVIEW OF PERFORMANCE The Department remained, for the fourth consecutive year, one of the best performing national departments and four of the five entities that appeared before the Committee were awarded clean audits.

In 2021/22, the Department and these entities spent in excess of 95% of their allocated funds and achieved, on average, 85% of their performance targets.

Furthermore, the Department and entities reported that they were on track to achieve a greater part of their MTSF targets.
However, a key target that will remain unachieved is the enduring challenge to reach the proportion of gross expenditure on R&D (GERD) to GDP of 1.1% by 2024.

Instead, the South African National Survey of Research and Experimental Development – Statistical Report 2019/20 showed that GERD as a percentage of GDP at current prices continues to decline, as reflective of the shrinking economy, and was 0.62% in 2019/20, a further decline from the 0.75% and 0.83% recorded in 2018/19 and 2017/18, respectively.
Worryingly, business expenditure on R&D also continues to decline.

To mitigate these challenges, the collaborative action to implement and fund the priority actions of the STI Decadal Plan and the implementation of the STI Public Budget Coordination Mechanism that seeks to unlock additional funding for STI, are crucial.
For the year under review, performance targets that were not achieved were mainly due to the constrained innovation and technology system, as well as its inherent uncertainty; the lack of demand for certain incentives and funding instruments; competition for high-level skills and factors that were outside the control of the Department and the entities, among others.

Under- expenditure was mainly attributed to delays in filling prioritised posts.
38 83 The HSRC maintained its overall performance of 90% but regressed in terms of its audit opinion.

The new Chairperson of the Board assured the Committee that decisive steps were being taken to implement the recommendations of the AGSA and to address the root causes of this matter, as well as ensure that the needed consequence management is enforced and the necessary monies are recovered from staff.
Notwithstanding their achievements and the progress made in respect of national priorities, the Department, its entities and the NSI as a whole remains underfunded.
The sub-optimal level funding has limited the scope and impact of many of the initiatives aimed at increasing the size, coherence and effectiveness of the NSI, as required by the NDP, as well as efforts to ensure greater inclusivity, representation and higher rates of transformation, since the scale of these initiatives are defined by the available budget and not by the need it seeks to address.
The sub- optimal level of funding for all entities has also compromised the full implementation of mandates and created capacity challenges as high-level skills seek better/more secure employment elsewhere.

Hence, the Department and its entities are increasingly compelled to find additional forms of funding.

However, due to the constrained national and global economy, the external funding the entities rely on to execute their functions has also declined.
In addition, public procurement regulations require public entities to tender and compete with the private sector for government contracts, usually for work that the entities are mandated to do and for which they receive money from the national fiscus.

In this regard, the CSIR reported that potential contract income from the public sector of approximately R450 million could not be realised.
Over the 2023 MTEF, the Department informed the Committee that funding requirements amounted to R3.5 billion, comprising: • • • • R2.7 billion for the SKA; R500 million for the Innovation Fund; R197 million to upgrade the Department’s building; and R50 million, each, for the catalytic projects of the Hydrogen Society Roadmap and the Space Weather Centre and its operations.

39 84 The Space Infrastructure Hub also requires funding of R3.5 billion over the next ten years.
The Department has applied for funding through the Budget Facility for Infrastructure for the Space Infrastructure Hub and the SKA.

However, the Space Infrastructure Hub requires approximately R1.6 billion over the current MTEF.

The current MTEF funding requirements and challenges of the entities include: Entity CSIR Funding requirements / Pressures Funding required for the Capital Investment Plan.

The CSIR intends to establish a Seed Fund for the commercialisation of late stage technologies.
Total investment required over the medium-term amounts to R1.2 billion.

HSRC NRF SANSA TIA inflation Baseline allocation over related/linked.

The entity is likely to have budget shortfalls on staff costs.

the 2023 MTEF is not Additional funding is required to augment the current budget programme structure.

No Capex budget (based on replacement time).

The majority of assets is fully depreciated and should be replaced over the medium-term.
The HSRC building is aging and there is a need to fund the maintenance plan.

Preventative maintenance will cost R10 million.

R7 billion is needed over the medium-term for established funding instruments/programmes - where additional funding could enhance the impact of these programmes, or for newly developed instruments, which have not yet been funded.

The baseline allocation falls short of the funding required to fulfil the mandate adequately, operate some sites and meet staff costs.
Budgeting for core programmes is a challenge due to funding constraints.

Cost of compliance as a Schedule 3A listed Public Entity in terms of the PFMA is substantial.

Current funding levels remain largely inadequate for fulfilling the mandate effectively.

Funding pressure continues to exist in relation to funds available for operational needs (no inflationary increases incorporated into the baseline allocation over the 2023 MTEF).
Funding of R575 million needed for the Seed Fund (an instrument that has created significant impact within the system).

Overall, the Department with its entities have shown that they can, to a significant degree, spend their allocated budget and achieve their performance targets.
However, the lack of coherence and collaboration within the NSI and the current funding and capacity constraints will continue to hamper the realisation of the desired vision of a “whole-of-government approach” to 40 85 innovation to ensure that greater and inclusive well-being and prosperity is derived through STI.

7.
7.

COMMITTEE OBSERVATIONS The Committee commended the Department and the entities for their efforts in delivering on some of the key areas for social and economic development in line with the goals of the NDP and within acute financial constraints.

The Committee’s observations highlight some of the key areas emanating from the interactions with the Department, entities and relevant stakeholders, which require further attention and discussion.
Hence, the Committee: Department of Science and Innovation 7.1.

Welcomed the Department retaining its clean audit and rating as one of the best performing national departments for a fourth consecutive financial year.

7.2.

Noted that because the Department was well managed it could direct greater attention to interrogating performance targets and recorded achievement.

7.3.
7.3.

Reiterated that the Department must be intentional in its efforts to ensure inclusivity, transformation and representation, especially in relation to gender and people with disabilities, and that adequate funding and coherent planning must support these performance targets.

7.4.

Expressed their dissatisfaction that the target to award bursaries to pipeline postgraduate students was not met.
Noting the shortage of skills in the specialised research areas for which bursaries were offered, the Committee enquired what efforts were underway to ensure that uptake met the available funding, especially since the Committee was inundated with funding requests from postgraduate students.

7.5.

Stressed that the high number of vacancies and “acting” positions at senior management level must be addressed urgently, especially since this accounted for the bulk of the Department’s under-expenditure.

7.6.
7.6.

Reiterated that the Department needed to ensure that its oversight of the entities addresses the findings raised by the AGSA and that planned performance is aligned to the needs of the country.

41 86 Department of Science and Innovation, and Entities 7.7.

Noted that because the Department and the majority of entities were well managed, greater attention could be given to interrogating actual performance and its potential socio-economic impact.

7.8.
7.8.

Remained concerned about the measurable impact of STI on the lived realities of citizens.

7.9.

As with the Department, reiterated that the entities must be intentional in their efforts to ensure inclusivity, transformation and representation, especially in relation to gender and people with disabilities, and that adequate funding and coherent planning must support these performance targets.

7.10.
7.10.

Noted that the budget allocations are not sufficient to fulfil the relevant mandates, which seek to facilitate inclusive economic growth and socio-economic development, promote environmental sustainability, support R&D-driven industrialisation, support the development of needed human capital and infrastructure and improve service delivery and government decision making, adequately.

7.11.
7.11.

Noted that, despite financial limitations, the Department and entities have shown that they can, to a significant degree, spend their allocated budget and achieve their performance targets.

7.12.

Noted the efforts to diversify revenue streams through local and international partnerships and the commercialisation of relevant IP portfolios.

Especially since the parliamentary grants continue to decline in real terms.
Here the Committee cautioned that partnerships and licence and/or infrastructure hosting agreements must address the critical needs of the country.

7.13.

Noted that, due to funding constraints and the inability to offer market related salaries and service benefits, the science councils were struggling to retain highly skilled SET employees.

This further influenced the performance of the entities and the relatively high number of vacancies.

7.14.
7.14.

Took cognisance of the 2023 MTEF funding requirements and pressures of the Department and entities and will endeavour to schedule a specific engagement on this, as well as to consider the potential impact of these funding requirements not being met.

7.15.

Noted a number of instances where the Department and entities exceeded their performance targets, leading the Committee to question the planning processes around target setting.

42 87 7.16.
42 87 7.16.

Questioned, in instances where targets were not achieved, how the Science Engagement programme was being used to address the issues that negatively affected performance achievement.

7.17.

Welcomed the increased allocation for science awareness and outreach initiatives, especially since it encouraged youth participation in and understanding of science.

Entities 7.18.
Entities 7.18.

Welcomed the largely positive performance and governance outcomes and noted with concern the regression in the HSRC’s audit opinion.

7.19.

Welcomed the new Chairperson of the HSRC Board and his assurances that all issues related to the audit opinion will be addressed, that the needed consequence management will be enforced and that the necessary monies will be recovered from staff.

7.20.
7.20.

Noted that the HSRC Board would continue engagements around the current funding model so that the future financial sustainability of the HSRC improves.

7.21.

Stressed that when supply chain management processes are not adhered to, entities must ensure adequate consequence management.

7.22.

Welcomed that some of the senior management and critical skills vacancies would be filled during the current financial year, especially the CEO positions of the HSRC and SANSA.
However, in the case of TIA, the CEO position would be filled once the Minister of Higher Education, Science and Innovation has briefed the new Board on the outcomes of TIA’s institutional review.

7.23.

Noted the plans by, specifically the CSIR and the HSRC, to attract and retain the needed SET staff.

7.24.

Noted the support for the commercialisation of locally developed technologies and innovations through the Grassroots Innovation Programme, managed by TIA.
However, the Committee maintained that this was inadequate to service the demands of youth, women, people with disabilities and unemployed graduates who wanted to be entrepreneurs.

7.25.

Noted that SANSA is experiencing issues in relation to the protection of its sites from radio frequency and magnetic interference and that it requires the cooperation of all spheres of government to address.

7.26.
7.26.

Noted the delays around the ongoing negotiations to transfer the Houwteq AIT facility from Denel to SANSA, so that this critical infrastructure is not lost.

43 88 7.27.

Noted the negative impact of procurement regulations on the ability of entities to earn contract income from the public sector.
Entities are required to compete with private organisations that are larger and/or better resourced; hence, their bids may be lower even if they do not have the same level of expertise as the entities, for these tenders.

7.28.

Noted the ongoing funding constraints for postgraduate study and welcomed the effort to collaborate with the National Student Financial Aid Scheme and other government entities to consolidate the funding strategy for postgraduate students.

7.29.
7.29.

Welcomed the e-certification innovation funded by TIA that automatically certifies documents.

The Committee encouraged that these types of innovations should be considered by, for example, the South African Police Service who devote huge amounts of human resources to manually certify documents.

7.30.

Welcomed the initiative of the NRF to incorporate the use of indigenous languages in its science awareness programme through a partnership with community radio stations in rural areas.

8.
8.

RECOMMENDATIONS The Portfolio Committee on Higher Education, Science and Innovation recommends that the: 8.1.

The Minister of Higher Education, Science and Innovation (the Minister) and the Department exercise their direct oversight function over the entities more diligently, especially the HSRC to ensure compliance with the requisite governance and legislative prescripts.

8.2.
8.2.

The Department and entities provide the Committee, within one month of the National Assembly adopting this report, with their audit action plans and progress reports in relation to consequence management.

8.3.

The Minister continues his efforts with National Treasury, the private sector and international partners to secure additional funding for the science and innovation portfolio.

8.4.
8.4.

The Minister continues to engage National Treasury on a review of the procurement regulations for the science councils.

8.5.

The Committee establishes the specific detail around additional funding for the Department and entities.

The Committee will schedule an engagement in the first term of 2023 to discuss this matter.

44 89 8.6.
44 89 8.6.

The Minister and Department prioritise the finalisation of the institutional reviews of entities and implement the recommendations, especially where it affects the appointment of senior management officials.

8.7.

The Minister and the Department prioritise filling key vacancies in the Department and affected entities to ensure that the requisite leadership is in place.

8.8.
8.8.

The Department and entities must be intentional in their efforts to ensure inclusivity, transformation and representation when filling vacancies.

8.9.

The Department and entities review their target setting in instances where significant overachievement was recorded.

8.10.
8.10.

The Department enhances its collaboration with other government departments, entities and the private sector, to ensure better coordination and a possible consolidated approach around funding programmes for postgraduate students.

8.11.

The Department and NRF should intensify their efforts with universities and the research community to ensure that the uptake of specialised research bursaries is improved.

8.12.
8.12.

The Department prioritises the finalisation of its Transformation Framework, which will address the Committee’s concerns around having a transformed, representative and inclusive science system.

8.13.

Henceforth, Annual Performance Plans must account for the needed transformation of the science system across all programmes, and demographic information must be presented in full detail.

8.14.
8.14.

The Department and entities endeavor, where possible, to expand initiatives aimed at supporting and growing the participation of youth, people with disabilities and unemployed graduates, especially in relation to the commercialisation of local innovations.

8.15.

The Department explores mechanisms to better report on the impact of science and innovation investment.

8.16.

The Committee schedules a focused engagement to consider Impact and Inclusivity within the Department and its entities.

8.17.
8.17.

The Department provides a brief on the progress and developments around the transfer of the Houwteq AIT facility from Denel to SANSA.

Report to be considered.

45 90 4.
BUDGETARY REVIEW AND RECOMMENDATION REPORT (BRRR) OF THE PORTFOLIO COMMITTEE ON HIGHER EDUCATION, SCIENCE AND INNOVATION ON THE 2021/22 ANNUAL REPORT OF THE DEPARTMENT OF HIGHER EDUCATION AND TRAINING AND ENTITIES, DATED 04 NOVEMBER 2022 The Portfolio Committee on Higher Education, Science and Innovation (hereinafter the Committee), having considered the 2021/22 financial and non-financial performance of the Department of Higher Education and Training (hereinafter the Department), the Quality Council for Trades and Occupations (QCTO), the South African Qualifications Authority (SAQA) and the Council on Higher Education (CHE), reports as follows: 1.
INTRODUCTION AND MANDATE OF THE COMMITTEE 1.1.

Introduction and mandate of the Committee The National Assembly (NA) Committees are required in terms of Section 5 of the Money Bills Amendment Procedure and Related Matters Act, 2009 (Act No.
9 of 2009) to annually assess the performance of each national department, and to thereafter submit a Budgetary Review and Recommendation Report (BRRR), which will provide an assessment of the department’s service delivery performance given available resources; an assessment on the effectiveness and efficiency of the department’s use and allocation of available resources; and may include recommendations on the forward use of resources.
Section 55(2) of the Constitution of the Republic of South Africa, 1996 stipulates that “the National Assembly (NA) must provide for mechanisms (a) to ensure that all executive organs of state in the national sphere of government are accountable to it; and (b) to maintain oversight of (i) national executive authority, including the implementation of the legislation; and (ii) any organ of state.” 1.2.
Purpose of the BRR Report This report aims to account in accordance with section 5 (2) of the Money Bills Amendment Procedure and Related Matters Act, 2009, which mandates all committees of the National Assembly (NA) to annually submit BRR reports for tabling in the NA for each department.

1 91 1.3.
1 91 1.3.

Method In preparation for the review process of the 2021/22 Annual Reports, the Committee had briefing sessions with the Financial and Fiscal Commission (FFC) on the overview of funding and performance of the Department and its entities and the Auditor-General of South Africa (AGSA) on the 2021/22 audit outcomes of the Higher Education and Training Portfolio.
The Committee further held briefings with the Department on 12 October 2022 and, QCTO, SAQA and CHE on 14 October 2022 on their 2021/22 Annual Reports.

2.

RELEVANT POLICY FOCUS AREAS 2.1.

National Development Plan (NDP) The NDP identifies the decent work, education and capacity of the state as particularly important priorities.

For the post-school education and training sector, the NDP envisages that by 2030, South Africans should have access to education and training of the highest quality.
The education, training and innovation system should cater for different needs and produce highly skilled individuals; and graduates of the post-school system should have adequate skills and knowledge to meet the current and future needs of the economy and society.

2.2.
2.2.

White Paper for Post-School Education and Training (WPPSET) The White Paper articulates a vision for an integrated system of post-school education and training, with all institutions playing their role as part of a coherent but differentiated system.

The White Paper sets out strategies to expand the current provision of education and training in South Africa, improve its quality, and integrate the various strands of the post-school system.
The White Paper sets interventions for implementation by different sectors within Post-School Education and Training.

The Department has developed a Draft National Plan for Post Education and Training (PSET) from the White Paper, which will be an implementation plan with measurable targets for each sub-system of the sector.
The main policy objectives are: • A post-school system that can assist in building a fair, equitable, non-racial, non-sexist and democratic South Africa; • A single, coordinated post-school education and training system, expanded access, improved quality and increased diversity of provision; and • A post-school education and training that is responsive to the needs of individual citizens, and employers in both public sectors, as well as broader societal and development objectives.
2 92 The WP-PSET commits the Quality Assurance Councils, including the South African Qualifications Authority (SAQA), to ensure that there are no dead ends within the post-school education and training system.

It further states that articulation should be both vertical in terms of moving to higher levels of the National Qualifications Framework (NQF) and horizontal, catering for movement from, a vocational stream to an academic one or vice versa.

2.3.
2.3.

2019 – 2024 Medium-Term Strategic Framework (MTSF) The 2019 – 2024 MTSF is a five-year strategic plan of Government and forms the second five- year implementation phase of the NDP.

The Department of Higher Education and Training is responsible for contributing to the realisation of the policy priorities as outlined in the MTSF Priority 3: Education, Skills and Health.
For the 2020 – 2025 planning period, the Department will focus on these outcomes as follows: • Expanded access to PSET opportunities, which aims to provide a diverse student population with access to a comprehensive and multifaceted range of PSET opportunities; • Improved success and efficiency in the PSET system aims to improve efficiency and success of the PSET system; • Improved quality of PSET provisioning to build the capacity of PSET institutions to provide quality education and training; • A responsive PSET system to provide qualifications programmes and curricula that are responsive to the needs of the world of work, society and students; and • Excellent business operations within DHET to ensure sound service delivery management and effective resource management within the department.
2.4.

National Skills Development Plan (NSDP) 2030 The NSDP aims to ensure that South Africa has adequate, appropriate, and high-quality skills that contribute towards economic growth, employment creation, and social development.

The NSDP is set to become the key policy to inform the work of the skills levy institutions until 2030 and has been crafted within the policy context of the NDP, and the White Paper.
The work of the institutions will focus on addressing the eight NSDP outcomes as follows: • Outcome 1: Identify and increase production of occupations in high demand; • Outcome 2: Link education and the workplace; 3 93 • Outcome 3: Improve the level of skills in the South African workforce; • Outcome 4: Increase access to occupationally directed programmes; • Outcome 5: Support the growth of the public college system; • Outcome 6: Skills development support for entrepreneurship and cooperative development; • Outcome 7: Encourage and support worker-initiated training; and • Outcome 8: Support career development services.
2.5.

2021 State of the Nation Address (SONA) In February 2021, the President, Mr Ramaphosa addressed the South African citizens during his State of the Nation Address.

The President’s SONA focussed on the following: • To defeat the Coronavirus (COVID-19) pandemic; • To accelerate economic recovery; • To implement economic reforms to create sustainable jobs and drive inclusive growth; and • Fight corruption and strengthen the State.
One of the key focus areas of the February 2021 SONA was inclusive growth, which addresses critical priorities for the Higher Education and Training sector.

There has been a steady improvement in the reach of education; although it is acknowledged that it is inadequate.

The continued focus on inclusive growth is about the critical actions that are required to build a capable state and place the economy on the path to recovery.
The Department and its entities are required to implement programmes to contribute to the acceleration of economic recovery.

3.

RESPONSE TO THE PREVIOUS FINANCIAL YEAR RECOMMENDATIONS OF THE PORTFOLIO COMMITTEE AND THE SELECTED 2022/23 BUDGET VOTE 17 REPORT RECOMMENDATIONS 3.1.

2021 Budgetary Review and Recommendation Report (BRRR) In accordance with section 7(4) of the Money Bills Amendment Procedure and Related Matters Act, 2009 (Act No.
9 of 2009), which provides the following: 4 94 “The Minister must submit a report to the House at the same time as tabling the Bills referred to in subsections (1) and (3), explaining how the Division of Revenue Bill and the national budget give effect to, or the reasons for not considering, the recommendations contained in the reports referred to in section 5(2), 6(7) and 6(12).

Accordingly, the Report of the Minister of Finance was tabled to Parliament.
Below are responses from the Minister of Finance to the Committee’s 2021 Budgetary Review and Recommendation Report (BRRR) of the Committee.

• The Committee noted that with the current funding for ministerial approved programmes at 62 per cent, the department will not be able to meet the enrolment target as per the National Development Plan (NDP).

The committee recommended that consideration be made toward progressively injecting additional funds to achieve the 80 per cent funding.
Minister of Finance’s response: The National Treasury acknowledges this recommendation.

In light of the limited resources available to Government, the Department of Higher Education and Training has had to tailor enrolment funding for the technical and vocational education and training colleges to align it to the funding available.

Should the government’s fiscal position improve, the department will be considered for additional resources.

The Committee notes the response.


• The Committee recommended additional funding towards Community Education and Training (CET), especially given the high rate of youth unemployment and the growing number of youths not in education, employment or training.

Minister of Finance’s response: The National Treasury shares the committee’s concern about the high rate of youth unemployment and the need to provide opportunities for young people.
At present, enrolment at CET colleges is relatively low because of low demand rather than limited funding.

Improving efficiency, including providing more relevant courses, is likely to encourage more young people to enrol at CET colleges.

• The Committee implored the National Treasury to consider additional funding for the National Student Financial Aid Scheme (NSFAS) to avert the instability and unfortunate loss of lives experienced at the beginning of the 2021 academic year.
5 95 Minister of Finance’s response: Cabinet is engaging with input from the Ministerial Task Team on Student Funding to find a sustainable solution to the increasing demand to provide fee‐free higher education funding.

Funding of the current model has been supplemented by an additional allocation of R32,6 billion over the medium term.
The Committee welcomed the additional funding for student funding, which will bring stability within the sector and will further ensure that guidelines for the DHET Bursary to guide the allocation of funds are published on time.
• The Committee requested that consideration for additional funding should be made to increase the administrative expenditure of the NSFAS as the current administrative budget imposes limitations on the improvements that the Scheme can implement to improve efficiencies, including ICT challenges.

Minister of Finance’s response: The Department of Higher Education and Training has reprioritised R65 million from savings on unfilled posts in 2021/22.
The funds will be used by NSFAS to address its information and communications technology challenges.

Further savings may be found by addressing inefficiencies in NSFAS’s current operations.

The Committee welcomed the reprioritisation of R65 million towards NSFAS administration to address the ICT-related challenges.

However, NSFAS has reported that it has requested R200 million to effect necessary improvements in the ICT systems and processes and to ensure that the systems are fit for purpose.
• The Committee recommended that the National Treasury considers the South African Qualifications Authority (SAQA)’s request for additional funding so that the entity can fulfil its mandate and deliver services within the set turnaround times.

Minister of Finance’s response: The Department of Higher Education and Training has reprioritised funding from its baseline to allocate an additional R10,6 million to SAQA over the medium‐term expenditure framework (MTEF) period.
The Committee welcomed the additional allocation to SAQA over the 2022/23 MTEF period to implement its digitisation and automation projects.

6 96 3.2.

2022/23 Committee Budget Vote 17 Report Summary of the selected 2022/23 Committee Budget Vote 17 Report Recommendations The Committee considered the 2022/23 Annual Performance Plans (APP) and budgets of the Department of Higher Education and Training and entities and recommended, amongst others, the following: 3.2.1.
The Department expedites the filling of vacant positions within the stipulated timeframe, including the DDG University Education.

The filling of vacant positions will assist the Department in meeting its service delivery requirements and related performance indicators and targets.

3.2.2.

The Department considers adding more specific and actionable targets in the implementation of the Gender Equality and the GBV Policy Framework for the PSET system.
Mainstreaming of the Department’s response to GBV will contribute significantly to the fight against the scourge in the PSET sector, this would require the requisite funding in line with advancing gender-responsive budgeting.

3.2.3.

The Department expedites the development of a sustainable student funding model of the PSET system so that students from the missing middle bracket are assisted with funding to access higher education institutions.

3.2.4.
3.2.4.

The development and expansion of student accommodation infrastructure in the TVET sector be prioritised, and capacity-building initiatives are implemented to assist the management of TVET colleges with the necessary skills required to utilise the Infrastructure Efficiency Grants (IEG) earmarked for infrastructure expansion and maintenance.

3.2.5.
3.2.5.

The Department expedites the improvement of students’ placement into workplace or industry to acquire the necessary work-based learning to complete their qualifications.

Equally, the industry needs to absorb more students to participate in work-integrated learning programmes to obtain the necessary experience required to complete their qualifications.

3.2.6.
3.2.6.

Dedicated funding be considered to assist INDLELA Trade Test Centre to operate efficiently and effectively in the training and development of artisans required to build and sustain the economy.

3.2.7.

The Department ensures that the resolutions coming out of the Ministerial CET Summit are implemented to position CET colleges as institutions of choice for the provision of skills programmes.

7 97 3.2.8.
7 97 3.2.8.

NSFAS expedites the payment of tuition and residence fees to institutions so that institutions and private accommodation providers can cater for the needs of students in student residences.

3.2.9.

The CHE, working with WSU, ensures that all students who have been negatively affected by the allegations in relation to the offering of unaccredited qualifications by the University are provided with the necessary support.

3.2.10.
3.2.10.

The Department ensures that additional funding is allocated to improve the financial sustainability of SAQA over the medium term to the long term.

3.2.11.

The Minister expedites the filling of the vacant position of the Board Chairperson and other vacancies in the QCTO Council.

3.3.

Overview and assessment of the Department’s 2021/22 financial performance 3.3.1.
Overview and assessment of the 2021/22 budget and expenditure Table 1: 2021/22 budget allocation and expenditure APPROPRIATION PER PROGRAMME FINAL APPROPRIATION R’000 ACTUAL EXPENDITURE R’000 VARIANCE R’000 % SPENT Administration Planning, Policy and Strategy University Education Technical and Vocational Education and Training Skills Development Community Education and Training Total: Departmental Voted Funds Statutory Appropriation (National Skills Fund and SETAs Total - 100.0% 116 900 615 116 426 620 473 995 99.6% Source: DHET (2021/22 Annual Report The Department’s total final appropriation for the 2021/22 financial year amounted to R116,90 billion, comprising of R97,88 billion of voted funds and R19,01 billion from direct charges against the National Revenue Fund.
The budget excludes revenue amounting to R21,54 million from Departmental receipts and aid assistance.

The Department had spent R116,42 billion or 99.5 per cent of the allocated funds at the end of the financial year.

Underspending, excluding 8 98 direct charges, amounted to R437,99 million or 0.4 per cent (R397,46 million in 2020/21) from the voted funds.

The under-expenditure, however, has not negatively impacted the Department’s programmes and service delivery processes.
Notably, programmes 4: TVET and 6: CET had a combined underspending amounting to R364,90 million (R374,41 million in 2020/21), representing 76.9 per cent of the total underspending on voted funds.

The bulk of the underspending amounting to R450,35 million or 95.0 per cent (R350,24 million in 2020/21) of the total underspending was on compensation of employees.

Underspending on goods and services amounted to R12,67 million, constituting the second largest underspending.
However, the underspending on goods and services had decreased significantly from R45,11 million in 2020/21 to R12,67 million in 2021/22.

3.3.2.
Expenditure per economic classification Table 2: 2020/21 allocation and expenditure per economic classification APPROPRIATION PER ECONOMIC CLASSIFICATION FINAL APPROPRIATION R’000 ACTUAL EXPENDITURE R’000 VARIANCE R’000 % SPENT Current payments Compensation of employees Goods and services Transfers and subsidies Payments for capital assets Payment for financial assets Total Source: DHET (2021/22) Annual Report During the period under review, the Department had spent R9,18 billion (R9,22 billion in 2020/21) or 95.3 per cent on compensation of employees against the available budget of R9,63 billion, recording an underspending amounting to R450,35 million or 4.7 per cent.
Notably, underspending on compensation of employees, increased exponentially by R100,11 million from R350,24 million in 2020/21.

The increase in the underspending was ascribed to natural attrition, unfilled vacancies, implementation of Post Provisioning Norms for TVET colleges which has not taken place as planned and implementation of the standardisation of CET not taking place as planned.
Unspent funds related to vacant posts in the Department posts on the staff establishment were not filled timeously, as projected.

9 99 In terms of goods and services, the Department had spent 97.8 per cent or R574,70 million (R396,53 million in 2020/21) against the budget of R587,37 million.

The Department recorded an underspending amounting to R12,67 million, which was ascribed to slower than projected expenditure due to the COVID-19 pandemic and that some activities were suspended/delayed.
Some savings were realised on travel and subsistence, printing and stationery due to virtual meetings, virtual workshops, and officials working from home.

The high-cost drivers in goods and services were computer services (R117,01 million), operating leases (R100,04 million), operating payments (R100,83 million), travel and subsistence (R89,73 million), and training and development (R43,04 million).
In terms of expenditure on transfers and subsidies, the Department spent R106,65 billion or 100 per cent, against a budget of R106,66 billion.

The underspending on transfers and subsidies amounted to R2,97 million.

The expenditure on payment for capital assets amounted to R10,0 million or 56.6 per cent of the available budget, thus recording an under-expenditure amounting to R7,99 million.

The Department applied virements amounting to R43,78 million.
Virements were applied from three programmes as follows: R2,24 million from University Education to Administration, R4,55 million from Skills Development to Administration, R16,27 million from Skills Development to Planning, Policy and Strategy, R15,17 million from Skills Development to TVET and R5,53 million from CET to TVET.
The Department reported that the need for the virement to Programme 1: Administration was to finance excess expenditure on Office Accommodation, while the virement to Programme 2: Planning, Policy and Strategy was mainly required to fund an increase in the transfer to Higher Health in adequately addressing COVID-19 regulations in Community Education and Training and for preventative activities in relation to Gender-Based-Violence, as well as SAQA for the automation and digitisation of its manual processes.
The virement to Programme 4: Technical and Vocational Education and Training was intended to fund a budget shortfall on the Examinations and Assessment sub-programme.

Funds that were shifted from Goods and Services were mainly realised on slower-than-expected operational expenditure in various programmes, as well as for the Indlela Recapitalisation project in Programme 5: Skills Development and the development of a Finance Model in Programme 6: Community Education 10 100 and Training.
Savings on Compensation of Employees was apparent mainly due to vacant posts on the Departmental Staff Establishment that could not be filled as planned and concomitant savings resulting therefrom, as well as the non-implementation of the Post-Provisioning Norms in TVET colleges.

The virements effected by the Department were approved by the Accounting Officer in terms of Section 43 of the PFMA and thereafter, reported to the Minister and National Treasury as required.

3.3.3.
3.3.3.

Overview and assessment of expenditure per programme 3.3.3.1.

Programme 1: Administration The purpose of this Programme is to provide strategic leadership, management and support services to the Department.

The programme’s 2021/22 final appropriation amounted to R470,39 million (R412,18 million in 2020/21).

Expenditure at the end of the year amounted to R432,57 million or 92 per cent against the available budget, with lower-than-projected spending amounting to R37,81 million.
The bulk of the underspending was incurred in three sub-programmes as follows: R24,36 million: Corporate Management Services, followed by R6,77 million: Office of the Chief Financial Officer and R6,35 million: Departmental Management.

The underspending on compensation of employees and goods and services amounted to R33,95 million (R9,84 million in 2020/21) and R1,05 million (R1,72 million in 2020/21), respectively.
The under-spending was due mainly to attrition posts that became vacant during the year that could not be filled as projected and the concomitant savings on administrative expenditure.

The low spending on machinery and equipment is due to delayed invoices for software and other intangible assets as well as the unavailability of computer equipment during the financial year.

Savings were realised on travel and subsistence, printing and stationery due to COVID-19 pandemic restrictions.

11 101 3.3.3.2.
11 101 3.3.3.2.

Programme 2: Planning, Policy and Strategy The purpose of the Programme is to provide strategic direction in the development, implementation and monitoring of Departmental policies and the Human Resource Development Strategy for South Africa.

The programme’s final appropriation in 2021/22 amounted to R256,10 million (R195,12 million in 2020/21).

Expenditure at the end of the year amounted to R239,29 million or 93.4 per cent against the available budget.
The programme recorded an underspending amounting to R16,81 million (R3,80 million in 2021/22).

The bulk of the underspending is in sub- programme 6: Social Inclusion and Quality at R7,55 million, followed by R3,34 million in sub- programme 4: International Relations and R3,12 million sub-programme 3: Policy, Planning, Monitoring and Evaluation.

Underspending on compensation of employees and goods and services amounted to R15,05 million and R499 000, respectively.
The underspending on transfers and subsidies amounted to R1,02 million.

The under-spending is due mainly to attrition posts that became vacant during the year and could not be filled as projected and concomitant savings on administrative expenditure as well as the suspension of planned trips and activities that were suspended due to the COVID-19 pandemic.

Savings were realised on the transfer to the Commonwealth of Learning due to a favourable Rand/Euro exchange rate.

3.3.3.3.
3.3.3.3.

Programme 3: University Education The Programme develops and coordinates the policy- and regulatory framework for an effective and efficient university education system.

The programme’s final appropriation in 2021/22 amounted to R81,92 billion (R78,36 billion in 2020/21).

Expenditure at the end of the year amounted to R81,89 billion or 100 per cent of the available budget, with lower than projected spending of R32,46 million.
The bulk of the underspending amounting to R29,89 million and R1,86 million was recorded on compensation of employees and transfers and subsidies, respectively.

The underspending is due mainly to posts on the staff establishment that were not filled as projected and the concomitant savings on administrative expenditure.

Planned monitoring and oversight visits were suspended due to COVID-19 restrictions.
Virtual meetings, workshops 12 102 and officials working from home replacing actual visits resulted in savings on travel and subsistence, printing and stationery.

3.3.3.4.

Programme 4: Technical and Vocational Education and Training (TVET) The purpose of this programme is to plan, develop, implement, monitor, maintain and evaluate national policy, programmes, assessment practices and systems for TVET.

The programme’s 2021/22 final appropriation amounted to R12,46 billion (R12,59 billion in 2020/21).
Expenditure at the end of the year amounted to R12,27 billion or 98.5 per cent against the available budget, with lower-than-projected spending amounting to R184,65 million (R124,47 million in 2020/21).

The bulk of the underspending at R135,89 million was incurred in sub-programme 2: TVET System Planning and Institutional Support 4: National, followed by sub-programme 6 at R24,24 million and sub-programme 4: Examinations and Assessment at R16,95 million.
The underspending on compensation of employees and payments for capital assets amounted to R179,34 million and R4,25 million, respectively.

The under-expenditure is due mainly to vacant funded posts not being filled as projected and the implementation of the post-provisioning norms for TVET colleges not taking place as planned.

The low spending on computer equipment is due to the unavailability of computer equipment during the financial year.

3.3.3.5.
3.3.3.5.

Programme 5: Skills Development The purpose of the Programme is to promote and monitor the National Skills Development Strategy (NSDS III) and to develop a skills development policy and regulatory framework for an effective skills development system.

The programme’s total appropriation for the 2021/22 financial year amounted to R414,04 million (R275,10 million in 2020/21).
Expenditure at the of the year amounted to R392,04 million or 94.7 per cent of the available budget, recording lower than projected spending of R22,0 million (R1,35 million in 2020/21).

The bulk of the underspending amounted to R12,41 million on compensation of employees and R9,08 million on goods and services, followed by R413 000 in payments for capital assets.
The under-spending is due mainly to attrition posts that became vacant during the year and could not be filled as projected and the concomitant savings on administrative expenditure and 13 103 a delay in artisan testing at INDLELA due to the COVID-19 pandemic.

The low spending on computer equipment is due to the unavailability of computer equipment during the financial year.
Virtual meetings, workshops and officials working from home replacing actual visits resulted in savings on travel and subsistence, printing and stationery.

3.3.3.6.

Programme 6: Community Education and Training (CET) The purpose of this Programme is to plan, develop, implement, monitor, maintain and evaluate national policy, programme assessment practices and systems for community education and training.

The programme’s 2021/22 final appropriation amounted to R2,36 billion (R2,25 billion in 2020/21).
Expenditure at the end of the year amounted to R2,18 billion or 92.4 per cent against the available budget.

The programme recorded lower than projected spending amounting to R180,25 million.

The bulk of the underspending amounting to R171,79 million was incurred in sub-programme 2: Community Education and Training Colleges System Planning, Institutional Development and Support, followed by sub-programme 4: Education, Training and Development Assessment at R5,58 million.
Underspending on compensation of employees amounted to R179,70 million.

The underspending was due mainly to posts on the staff establishment of the Department that were not filled as projected and the implementation of the standardisation of lecturing posts not taking place as originally planned.

3.3.3.7.

Irregular, fruitless and wasteful and unauthorised expenditure incurred in the 2021/22 financial year The irregular expenditure opening balance for 2021/22 is R148,9 million.
For the 2021/22 financial year, the Department incurred irregular expenditure amounting to R2,44 million due to non-compliance with legislation.

Of this irregular expenditure, R955 000 was incurred due to correct procurement procedures not followed and R1,49 million was due to appointments made not in line with State Attorneys Act.

Prior year amounts condoned were R5 000.

Amounts not condoned and removed is R144,3 million.

Irregular expenditure awaiting condonation is R6,9 million.
Investigations into irregular expenditure cases of the previous financial years to the amount of R137,910 million 14 104 have been concluded and approval was obtained to remove this expenditure in the 2021/22 financial year.

3.3.4.

Overview and assessment of the Department’s programme performance for the 2021/22 financial year The Department’s Programmes, with their related achievement against the performance targets for the 2021/22 financial year, are shown in Table 3.
Table 3: The Department’s programme non-financial performance for the 2021/22 financial year PROGRAMMES APP Targets 2021/22 Achieved Not Achieved % Achieved 1.

Administration 2.

Planning, Policy and Strategy 3.

University Education 4.

Technical and Vocational Education and Training 5.

Skills Development 6.


Community Education and Training Total 2020/21 7 12 25 17 11 15 87 5 9 17 13 6 14 64 % Budget Spent 92.0% 93.4% 100.0% 98.5% 94.5% 92.2% 2 3 8 4 5 1 71.4% 75% 68% 76% 55% 93% 23 73.6% 99.6% 70% 99.6% During the period under review, the Department’s total consolidated predetermined targets were 123.
Of this, 87 were the Departmental direct outputs and 36 system targets (shared amongst the four delivery budget programmes, namely, University Education, TVET, and Skills Development and CET).

The Department achieved 64 or 73.6 per cent of 87 direct outputs.

The overall performance increased by 3.6 per cent from 70 per cent in 2020/21.

In terms of the system targets, the Department achieved 17 or 47.2 per cent of the 36 planned targets, recording an increase of 13.2 per cent from 43 per cent in 2020/21.
Of concern to note is that programme 5: Skills Development has not achieved most of the MTSF-related targets.

Notably, programmes 3 and 4, University Education and TVET have also recorded improvements in their system targets performance compared to 2020/21.

15 105 3.3.5.

Non-financial performance per programme 3.3.5.1.

Programme 1: Administration The programme had seven (7) targets for the 2021/22 financial year.

The programme achieved five or (71.4 per cent) of the seven targets.
The programme’s performance improved by 15.4 per cent from 57 per cent in 2020/21.

Selected key achievements • Determination tests on irregular, fruitless and wasteful expenditure concluded within 12 months (achieved 100 per cent).

• Percentage (80 per cent) of disciplinary cases resolved within 90 days per annum (achieved 87 per cent) • Average number (180 days) of days to fill an advertised post per annum (achieved 170 days).
Targets not achieved • Percentage (100 per cent) of valid invoices received from creditors paid within 30 days.

The Department ascribed the reasons for the deviation to system downtime and no interfacing between systems- LOGIS and BAS.

• Percentage (98 per cent) of the network connectivity uptime per annum.

The partial achievement was ascribed to the State Information Technology Agency (SITA) Data Centre power outages and breakages of fibre linking Centurion Data centre.

3.3.5.2.
3.3.5.2.

Programme 2: Planning, Policy and Strategy For the period under review, the programme had 12 targets.

The programme achieved nine or 75 per cent of the 12 targets.

The programme recorded an improved performance of 8 per cent from 67 per cent in 2020/21.

Selected key achievements • Number (5) courses available on the National Open Learning System (NOLS) (achieved 22).

The overachievement was ascribed to the additional financial support that the Department received from the European Union.
• The Department consulted on a report and amendments to the Recognition of Prior Learning Policy (RPL).
16 106 • The Director-General approved the following: A baseline report for articulation implementation between TVET colleges and universities; a report on the implementation of Social Inclusion in the PSET system, a report on the implementation of the Integrated Infrastructure Support Programme (IIDSP); and a monitoring report on progress towards the achievement of the Macro Infrastructure Framework (MIF); and E-learning/Open Learning Strategy in PSET.
Targets not achieved • Number (2) of new agreements on international scholarships entered with foreign countries per annum.

It was reported that there were delays in finalising the agreements due to travel restrictions caused by the COVID-19 pandemic.

• A report on the implementation of the Multi-Faceted Student Accommodation Strategy approved by the Director-General on 31 March 2022.

This report was not developed as planned.


It was noted that the development of the Multi-Faceted Student Accommodation Strategy was linked to the establishment of the Infrastructure Development Support Unit (IDSU) and that funding has not been secured for IDSU.

• A report on Skills Supply and Demand approved by the Director-General by 31 March 2022.

The Department reported that the Report was approved by the Director-General on 30 March 2022 as planned.
However, the monitoring report on priority Skills was only approved by the Director-General on 30 March 2022 and was not submitted to the Minister as planned.

The Department was still in the process of finalising the ERRP Skills Strategy, which eventually replaced the Priority Skills Plan.

3.3.5.3.

Programme 3: University Education The programme’s total consolidated targets for the period under review were 42, comprising 25 direct outputs and 17 system targets.
The programme achieved 17 or 68 per cent of the direct output targets and 11 or 64.7 per cent of system targets.

The programme performance on the direct outputs regressed from 91 per cent in 2020/21 to 68 per cent in 2021/22, while a significant increase of 21.7 per cent was recorded in the performance of system targets.
17 107 Selected key achievements Direct outputs The Director-general approved the following: A report on the achievement of Ministerial enrolment planning targets a report on the evaluation of the 2020 research outputs of public universities; a report on undergraduate cohort study report tracking student throughput a report on the evaluation of creative and innovation outputs by public universities; a report on the implementation report on International Scholarships Programme; a Programme for Entrepreneurship Development in Higher Education (EDHE).
• Forty-two scholarships or internship positions were allocated to universities through the Nurturing Emergency Scholars Programme.

• Eighty-seven new Generation of Academics Programme (nGAP) lecturer posts were supported at universities.

• Two intergovernmental international scholarships Forum meetings were convened.

Targets not achieved • A draft proposed Fee Regulation Framework approved by the Minister for consultation by 31 March 2022.
The Department reported that the draft Framework was developed and submitted to the Minister on 4 December 2021and it was being reviewed.

It was noted that the Minister requested further consultation on the framework, while the University Branch engaged in further consultations with higher education institutions to gather updated data that would feed into the framework.

• The proposed framework for a new student funding policy submitted to the Minister for approval for consultation by 31 March 2022.
The proposed framework for student policy was developed and approved by the Director-General on 27 March 2022.

The Ministerial Task Team was working on the identified areas of improvement to the proposed framework.

The Ministerial Task Team was continued with its work towards providing a final report to the Minister.

• A feasibility study to establish the nature and scope, as well as the location of the new institutions in the Ekurhuleni Metro, submitted to the Minister for approval by 31 March 2021.
The Department reported that the target was not achieved, however, work towards its achievement included meetings convened to discuss the academic enterprise and governance model for the two new universities at Ekurhuleni and Hammanskraal.

A 18 108 workshop was also convened to discuss the reports of the Academic and Governance work streams.

The feasibility study report will be completed during the second quarter of the 2022/23 financial year.
• Forty doctoral scholarships were allocated to universities through the University Staff Doctoral Programme (USDP) for award to permanent instructional or research staff members.

It was reported that the submission for approval was processed late due to human resource constraints.

Selected performance against the system targets • Number (1 090 000) of student enrolments at public universities (exceeded the target by 4 808).
• Number (427 851) of students receiving funding through the National Student Financial Aid Scheme (NSFAS) bursaries annually (exceeded the target by 75 485).

The Department noted that there are no limits imposed on the number of students who may be permitted to benefit under the scheme, nor any criteria to enable a limitation of this nature.
The rules of the fund are such that a student is funded if they are financially eligible, meet the rules of the scheme and have a confirmed registration at a public higher education institution.

As long as these criteria are met, the student is to be funded.

This is in line with the high-level policy decision taken by Government.

• Number (222 000) of students completing a university qualification annually (exceeded the target by 15 882).
System targets not achieved • Number (14 700) of graduates in engineering annually (2 048 below the planned target).

• Number (10 600) of graduates in natural and physical sciences annually (958 below the planned target).

• Number (9 960) of human health science graduates annually (314 below the planned target).

• Number (880) of animal health science graduates annually (13 below the planned target).
• Number (14 000) of Master’s graduates (all Master’s) annually (1 078 below the planned target) The Department indicated that the under-achievement of the aforementioned targets could be due to the COVID-19 pandemic as many of these students require work-integrated learning 19 109 (WIL) before they can graduate.
The various lockdowns could have impacted the ability of students to obtain employment opportunities to undergo their WIL, including the lack of access to laboratories for practicals for students in natural and physical and human and animal sciences.

3.3.5.4.

Programme 4: Technical and Vocational Education and Training For the 2021/22 financial year, the programme had 30 targets, comprised of 17 direct outputs and 13 system targets.
The programme achieved 13 or 76.4 per cent of 17 direct outputs and five or 38.4 per cent of 13 system targets.

The programme’s performance on direct outputs increased by 8.4 per cent from 68 per cent in 2021/22, while performance on system targets improved marginally by 2.4 per cent from 36 per cent in 2020/21.
Selected key achievements Direct outputs • The DG approved the following: Draft three-year enrolment with differentiation in programme enrolment; a model for efficient utilisation of current TEVT infrastructure; a report on the cooperation agreement with Germany on SAIVCET work; an assessment framework and implementation plan for the institutional maturity model for TVET colleges.

• Four TVET colleges were TVET colleges established Disability Support units to support students with disabilities.
• Five TVET colleges were supported to establish entrepreneurship hubs.

Targets not achieved • Final framework and guidelines to accommodate students with disabilities will be approved by the Minister by 31 March 2022.

It was reported that the framework was developed but not approved by the Minister at the time of reporting, although the submission was made within the financial year.

The framework was approved outside the reporting time.
• Number (200) of TVET college lecturers holding appropriate qualifications supported to acquire professional qualifications annually (achieved 119).

It was reported that there were not enough public TVET college lecturers who were registered for the Advanced Diploma TVT (Adv Dip TVT) programme by universities offering it.

While an impression was created by universities that 242 lecturers had completed the Advanced Diploma.
The 20 110 Department further explained that closer scrutiny of the number revealed that the 32 students who graduated from Tshwane University of Technology were not lecturers in any public TVET college, neither were 89 students from Nelson Mandela University and two of the three students who graduated from the Vaal University of Technology.

• Final governance standards for TVET college Councils approved by the Minister by 31 March 2022.
It was reported that they were not developed as planned because the development of governance standards was deemed Ultra Vires by the state legal advisor.

• Percentage (5 per cent) increase in student placement in the workplace for experiential learning per annum (achievement was 0 per cent).

It was reported that the total number of student placements decreased from 9 094 to 9 061 due to the adverse impact of the COVID- 19 pandemic on employers.
Selected performance against the system targets • Number (3 500) of students enrolled in Pre-Vocational Learning Programme (exceeded the target by 1 750); • Percentage (65 per cent) of TVET college lecturers with professional qualifications (exceeded the target by 1 per cent); • Number (770) of artisan learners trained in Centres of Specialisation (exceeded the target by 88); and • Number (500) of lecturers participating in the digital literacy programme (exceeded the target by 735).
System targets not achieved • Number (610 000) of students enrolling at TVET colleges annually (achieved 452 277).

The Department reported that the 2020 academic year was characterized by severe lockdowns and disruption on the academic calendar and enrolment intakes.

Semester two and trimester three were forfeited and these were substantial intakes.

• Number (310 900) of college students receiving funding through NSFAS bursaries annually (achieved 265 747).
It was noted that COVID-19 had an impact in terms of the academic calendar – fewer intakes – Semester two and Trimester three intakes were forfeited because of the lockdown.

Thus, fewer students applied for NSFAS.

• Number (70 880) of TVET college students completing N6 qualification annually (achieved 14 700).
The Department reported that the 80 per cent attendance requirement 21 111 for admission into examinations was waivered in the 2020 academic year, which could have led to lower attendance of classes by students and therefore poor performance • Number (13 286) of TVET college students completing NC(V) Level 4 annually (achieved 12 507).
It was reported that The 80 per cent attendance requirement for admission into examinations was waivered in the 2020 academic year which could have led to lower attendance of classes by students and therefore poor performance 3.3.5.5.

Programme 5: Skills Development The programme had a combined total of 13 targets, comprised of 11 direct outputs and two system targets.

The programme achieved six or 54.5 per cent of the 11 targets.

The programme achieved zero per cent of the MTSF-related targets.
Selected key achievements • The Minister approved the Sector Skills Plans (SSPs) aligned to the updated SSP Framework.

• The Director-General approved the Sectorial occupations in high demand and the three quarterly reports on the implementation of the National Skills Development Strategy (NSDS) • The Minister approved the Skills Strategy.

Targets not achieved • Annual number (103 750) of learners or students placed in WBL programmes (achieved 78 317).
• Number (147 000) of learners in skills development programmes annually (achieved 103 115).

• Number (21 500) of learners entering artisanal programmes annually (achieved 10 302) • Number (19 500) of artisans found competent annually (achieved 15 107).

• Number (114 032) of learners who completed skulls programmes annually (achieved 98 908).

• Percentage (95 per cent) of SETAs that meet standards of good governance.

Information was not available to report performance.
The underachievement of the MTSF-related targets was ascribed to the announcement of the skills levy holiday and closure of workplaces and trade centres due to COVID-19 restrictions.

22 112 3.3.5.6.

Programme 6: Community Education and Training The programme had 19 targets, comprised of 15 direct outputs and four system targets.

The programme achieved 14 or 93.3 per cent of the direct outputs and 1 of 25 per cent of the system targets.
Performance on the direct outputs has improved significantly from 57 per cent in 2020/21.

Notably, performance on the system targets has stagnated.

Selected key achievements • The programme appointed the Service Provider for the development of a sustainable funding model for CET colleges.

• A report on the implementation of the Advocacy Strategy for CET colleges was approved by the Director-General.

• Final governance standards and regulations for CET college were approved by the Director- General.
• A report on capacity-building workshops conducted to capacitate student leadership, centre management and Councils was approved.

• Twenty per cent of the earmarked funding was allocated to CET colleges to capacitate 54 pilot centres.

• The Director-General approved two digital skills programmes and three entrepreneurship programmes in CET colleges.
The programme did not achieve the target to have 100 per cent of CET colleges compliant with the policy in the conduct and management of examinations and assessments per annum.

The actual achievement was 99.99 per cent.

It was reported that irregularities were identified in the centres that were monitored on moderation of site-based assessment, writing of examinations- marking scripts.
Selected performance against the system targets Targets not achieved • Number (220 549) of students enrolling at CET colleges annually and The actual achievement was 142 538.

The Department ascribed the underachievement to the inability of the sector to diversify its programmes due to a lack of physical and ICT resources, and inadequate funding for CET colleges.

poor uptake of responsive and diversified programmes and understaffed colleges.
23 113 • Number (41 638) of CET college students completing General Education and Training Certificate (GETC) Level 4 annually.

The actual achievement was 38 814.

The underachievement was attributed to the standardisation process that impacted learning and teaching, the ending of the SAICA project and the impact of the supply chain management (SCM) capacity for Learner, Teacher Support Materials (LTSM) procurement meant that students did not have sufficient learning.
• Number (60 000) of CET college students completing Grade 12 annually.

It was reported that the report covers a number of enrolments and not of Grade 12 completion after enrolments.

3.4.

Auditor-General South Africa (AGSA)’s Report on the performance of the Department of Higher Education and Training The Department obtained an unqualified audit opinion with findings from the AGSA for the 2021/22 financial year.
Audit findings • Usefulness and reliability: The AGSA has made findings on the usefulness and reliability of reported performance information of Programme 4: Technical and Vocational Education and Training.

Notably, the AGSA has in the previous audit cycles made the same findings under the TVET programme.
The finding was on the achievement of the target on the percentage of TVET college lecturers staff appropriately placed in industry or exchange programmes; 2.2 per cent, which was reported against the target of 9 per cent in the annual performance report.

The AGSA noted that the supporting evidence provided differed materially from the reported achievement, while in other instances the AGSA was unable to obtain sufficient appropriate audit evidence.
This was due to the lack of accurate and complete records, and therefore, the AGSA was unable to further confirm the reported achievement by alternative means.

Consequently, the AGSA was unable to determine whether any further adjustments were required to the reported achievement.

• Adjustment of material misstatements: the AGSA identified material misstatements in the annual performance report submitted for auditing.
The material misstatements were in the reported performance information of programme 4: TVET.

Management subsequently corrected only some of the misstatements.

24 114 • Internal control deficiencies: The AGSA noted that the Department’s Management did not implement adequate controls for recording, measuring, collation and preparation of actual performance achievements, to ensure that the reported achievements in the annual performance report are valid, accurate and complete.
This resulted in material adjustments made on a number of indicators on the annual performance report.

Furthermore, the AGSA stated that the leadership did not exercise adequate oversight, specifically regarding reporting of the predetermined objectives of the department as well as the related controls, resulting in material misstatements identified during the audit.

It is noted with grave concern that these audit findings are repeat findings as they were also reported in the previous audit cycles.
This pointed to inadequate oversight by the leadership of the Department over those who were tasked with the responsibility of reporting the predetermined objectives as well as related controls.

4.

ENTITIES OF THE DEPARTMENT OF HIGHER EDUCATION AND TRAINING 4.1.

Quality Council for Trades and Occupations (QCTO) The QCTO was established as a juristic person in 2010 in terms of the Skills Development Act (SDA), 1998 (Act No.

97 of 1998) as amended in 2008.


The QCTO, as a quality assurance body, is responsible for a part of the National Qualifications Framework (NQF), which is the Occupational Qualifications Sub-Framework (OQSF).

The QCTO performs its functions in accordance with the Skills Development Act, 1998 as amended and the National Qualifications Framework Act, 2008.

4.1.1.
4.1.1.

Overview and assessment of the QCTO’s 2021/22 non-financial performance Table 4: The QCTO’s Programmes, with their related achievement against performance targets for the 2021/22 financial year Programme APP Targets 2021/22 Achieved Not achieved % Achievement 1.

Administration 2.

Occupational Qualifications Management and Certification 3.

Occupational Qualifications Quality Assurance 5 11 13 4 9 9 1 2 4 80.0% 81.8% 69.2% 25 115 4.
Research Analysis and Quality Assurance Total 2 31 2 24 - 5 100% 77.4% During the year under review, the QCTO had 31 performance targets and achieved 24 or 77.4 per cent of the planned targets.

The QCTO’s performance improved significantly by 13.4 per cent from 64 per cent recorded in the 2020/21 financial year.

4.1.2.
4.1.2.

Non-financial performance per programme • Programme 1: Administration The programme enables the QCTO performance through strategic leadership and reliable delivery of management support services that will ensure a responsive and learning organisation.

It contributes towards Institutional Outcome 3: A responsive learning organisation.

The programme provides for the development of the IT infrastructure; as well as the Human Resources capabilities required by the organisation.
For the period under review, the programme had five performance targets.

The programme achieved four (4) or 80 per cent of the five targets.

The QCTO Council approved the Capacity building and Change Management strategies.

During the period under review, the QCTO achieved 40 per cent implementation of the capacity-building strategy and 40 per cent of the implementation of the Marketing and Communication strategy.

Target not achieved • The MSP Annual Plan deliverables were not fully implemented.
The achievement was 31 per cent below the target of 100 per cent.

The partial achievement was attributed to the hold as a result of the National Treasury’s instruction to halt procurement of over R30,000 from 16 February 2022.
It was reported that the project will be rolled out in the 2022/23 financial year • Programme 2: Occupational Qualifications Management and Certification The programme ensures that occupational qualifications, part-qualifications and skills programmes on the Occupational Qualifications Sub-Framework (OQSF) are developed and registered on the NQF; issues certificates to qualifying learners; verify the authenticity of 26 116 issued certificates and maintain stakeholder relationship.
Furthermore, it contributes towards the achievement of Outcome 1: A single national quality assured Occupational Qualifications Sub-Framework that promotes synergy, simplification and effectiveness.

The programme had 11 targets, of which nine (9) or 81 per cent were achieved.

Selected key achievements • Seventy-two prioritised occupational qualifications (full/part) were recommended to SAQA for registration on the OQSF.
• The programme recommended to SAQA 472 historically registered qualifications for deactivation on the OQSF.

• The QCTO quality assured 100 per cent assessments for historically registered qualifications.

• A Report on the implementation of the Approved Council Plan was approved.

• The QCTO quality assured 100 per cent Assessment Quality Partners reports.

Targets not achieved • Number (100) of skills programmes approved by the QCTO Council.
the actual achievement was 81 and the partial achievement was ascribed to applications not meeting the QCTO requirements and the QCTO in-house delays in the processing of the skills programme applications.

• Percentage (90 per cent) of assessments for QCTO-developed skills programmes quality assured against QCTO standards within 21 working days.
There was zero per cent achievement and the deviation was attributed to no learner enrolments reported for skills programmes thus no final assessments have been conducted.

• Programme 3: Occupational Qualifications Quality Assurance The programme establishes and maintains quality standards for Accreditation and Assessment within the OQSF, and contributes towards the following institutional Outcome 1: A single national quality-assured OQSF that promotes synergy, simplification and effectiveness.
The programme had 13 performance targets during the 2021/22 financial year.

The programme achieved nine (9) or 69.2 per cent of the 13 targets.

27 117 Selected key achievements • Processed within the turnaround time of 90 working days the following: 92 per cent (2 per cent above the target) of Skills Development Providers (SDP) accreditation applications; 100 per cent (90 out of 90) accreditation applications for Council-approved Skills Programmes; and 96 per cent of SDP accreditation applications.
• Quality assured 55 (324 out of 593) per cent of accredited SDP with implemented historically registered qualifications with learner uptake.

• Quality assured 151 NATED Report 190/191 exams sessions conducted at accredited SDPs.

• Quality assured 42 exam monitoring centres.

Targets not achieved • Percentage (80 per cent) of accredited SDPs with implemented occupational qualifications and part qualifications quality assured according to QCTO standards.
The actual achievement was 70 per cent (123 out of 176) and the deviation was due to low responses from SDPs during quarter 1 to quarter 3.

• Number of occupational qualifications, part qualifications and skills programmes offered by TVET colleges (as per Ministerial Plan).

There was no approved Ministerial Plan against which to measure progress • Number of occupational qualifications, part qualifications and skills programmes offered by the CET colleges (as per the Ministerial Plan).
There was no approved Ministerial Plan against which to measure progress • Programme 4: Research Analysis and Quality Assurance The programme establishes and maintains the QCTO Standards for quality assurance through research, monitoring, evaluation and analysis.

It further contributes towards the institutional Outcome 1: A single national quality assured OQSF that promotes synergy, simplification and effectiveness.
During the period under review, the programme had two performance targets and both were achieved.

Three research reports were approved by the Chief Executive Officer and one research bulletin was published online.

28 118 4.1.3.

Overview and assessment of the QCTO’s 2021/22 budget allocation and expenditure For the 2021/22 financial year, the QCTO’s revenue amounted to R109,96 million (R132,08 million in 2020/21).
The revenue comprised R9,94 million from exchange transactions (R5,93 million: from rendering services, R171 000 other income and R3,84 million interest received) and R100,01 million from non-exchange transactions (R95,37 million Government grants and subsidies and R4,64 million from National Skills Fund conditional grants).
At the end of the 2021/22 financial year, the QCTO had spent R122,43 million, against the total revenue of R109,96 million, thus recording an over-expenditure amounting to R12,47 million.

The QCTO reported that the over-expenditure was not a real deficit, but an accounting deficit, due to the approval granted to the entity to retain its accumulated cash surplus of R23,6 million to cover the shortfall in the budget.
Since this amount was already accounted for in the prior year, it was not recorded as new revenue, however, it is kept in accumulated cash surplus.

It was further indicated that the only way to spend the approved surplus that resulted in an adjusted budget was through the reduction of accumulated surplus, which then resulted in a deficit.

The QCTO had spent R69,23 million on personnel costs, which accounted for 56.5 per cent of the entity’s total expenditure for the year under review.
Notably, expenditure on personnel costs decreased slightly by R729 000 from R69,96 million in 2021/22.

In terms of administrative costs, the entity had spent R45,31 million.

The cost drivers in terms of the administrative expenses were: consulting and professional fees: R11,28 million, lease rentals: R9,28 million, IT expenses: R7,04 million, water and electricity: R3,30 million and travel, subsistence and accommodation: R2,45 million.

4.1.4.
4.1.4.

Contingent liabilities The QCTO reported that in the 2020/21 financial year, a dispute has been declared between the entity and a service provider who donated the Management Information System (MIS) after the entity terminated the Service Level Agreement due to non-compliance with some prescripts of Public Finance Management Act (PFMA), the service provider is seeking damages of R7,057,402.

The matter is currently under arbitration and is expected to be finalised within one year.
29 119 Three former QCTO employees have taken the entity to the Commission for Conciliation, Mediation and Arbitration (CCMA) contesting their dismissals.

Should all three succeed with their cases, the QCTO is likely to pay an estimated R1,024,826, however, management and its legal representatives have determined that the likelihood of the QCTO losing all the cases is very minimal.

4.1.5.

2021/22 Audit outcomes The QCTO received a clean audit opinion for the sixth consecutive year.
Of importance to note is that the entity did not have material findings on the annual financial statements, no findings on predetermined objectives, no findings on compliance with legislations and no deficiencies in the internal controls.

4.1.6.

Future outlook The QCTO reported that its allocation from the SETA Levy Grant has been increased from R96,1 million for the 2022/23 financial year to R111,6 million for the 2023/24 financial year, although it had applied for R212 million.
The requested amount was to ensure that the organization has sufficient resources to bolster its core performance areas.

This includes that the QCTO has the requisite human resource capacity to fulfil its mandate and respond to its response to the Economic Recovery and Reconstruction Skills Strategy (ERRSS), the uptake of Occupational Qualifications in the PSET Sector, the roll-out of the OQSF and completing the automation processes.
The QCTO is still in the process of finalizing the purchase of its premises, which will reduce costs significantly.

The QCTO had responded to the clarifications sought by the Minister on 18 August 202 and was awaiting a response in this regard.

Regarding the unbudgeted revenue, the QCTO has included in its budget for the 2022/23 financial year onwards, previously unbudgeted revenue sources (accreditation, verification, certification and interest income) as trends can be determined to estimate accurately.
The entity had submitted to National Treasury a request for approval for the retention of cash surplus before the 30 September deadline and it was awaiting a response.

The entity’s funding is still not stable and relies heavily on the SETA Levy grant (which accounts for 77 per cent of total funding for 2023/24), which is applied for annually.

The Department informed the Committee that processes were underway to review the SETA grant regulations to address the funding challenges that the QCTO is facing.
30 120 4.2.

South African Qualifications Authority (SAQA) SAQA is a schedule 3A public National Public entity as defined by the Public Finance Management Act (PFMA), 1999 (Act No.

1 of 1999).

It derives its mandate from the Constitution of the Republic of South Africa (section 29 of the Constitution and the National Qualifications Framework Act, 2008 (Act No.

67 of 2008 as amended).


SAQA further derives its policy mandate from the NDP Vision 2030, the White Paper on PSET, including the National Plan for Post-School Education and Training, Economic Reconstruction and Recovery Plan and the Department’s five-year Strategic Plan.
In terms of section 13 of the Act, SAQA is mandated to, amongst others • Provide advice, oversee NQF implementation and collaborate with the Quality Councils; • Develop NQF policies and criteria; • Maintain a National Learners’ Records Database (NLRD), and provide an evaluation and advisory service with respect to foreign qualifications; • Undertake research, collaborate with international counterparts, and drive the communication and advocacy strategy to promote the understanding of the NQF architecture; and • Perform any function consistent with the NQF Act that the Minister of Higher Education and Training may determine.
4.2.1.

Overview and assessment of the SAQA’s 2021/22 non-financial performance For the 2021/22 financial year, SAQA had 20 planned targets shared amongst the six budget programmes.

SAQA achieved 16 or 80 per cent of the 20 targets.

The entity’s performance decreased slightly by 8 per cent from the 88 per cent achieved in the 2021/22 financial year.

Summary of programme performance for the 2021/22 financial year is illustrated in Table: 5 below.
Table 5: The SAQA’s Programmes, with their related achievement against performance targets for the 2021/22 financial year Programmes APP Targets 2021/22 Achieved Not achieved % Achievement 1.

Administration & Support 2.

Registration and Recognition 8 3 8 2 0 1 100% 66.7% 31 121 3.

National Learners' Record Database 4.

Foreign Qualifications Evaluation and Advisory Services (DFQEAS) 5.

Research 6. International Liaison 3 1 3 2 1 0 3 2 Total 20 16 2 1 0 0 4 33.3% 0% 100% 100.0% 80.0% 4.2.2.
Non-financial performance per programme 4.2.2.1.

Programme 1: Administration The programme contributes to the achievement of three of the SAQA’s Strategic Outcomes, namely; A dynamic NQF that is responsive, adapts to and supports the changing needs of life- long learning; visionary and influential leadership that drives a clear, evidence-based NQF Agenda; and a competent team, dedicated and resourced to develop and maintain the NQF.
The programme had eight (8) planned targets for 2021/22 and achieved 100 per cent of the targets.

Selected key achievements • SAQA reported on the effectiveness of the System of Collaboration, and the Board approved the report for submission to the Minister of Higher Education, Science and Innovation.
• Implemented the Alternative Funding Plan and generated additional revenue as follows: o R13 250 per month through a rental agreement for parking; o R600,000 through a contract with Durban University of Technology over three years; o Received additional income of R397 202 from Worlds Education Services for a pilot project involving the recognition of refugee qualifications; o Received additional funding of R9,9 million from DHET for the Automation Project • SAQA completed the development of the electronic Registers for misrepresented and fraudulent qualifications as part of the NQF MIS incorporating the NLRD.
• Four online campaigns aimed at informing the public about the NQF were implemented.

4.2.2.2.

Programme 2: Registration and Recognition The programme is responsible for registering qualifications and part-qualifications, recognising professional bodies and registering professional designations.
It contributes to two of the SAQA’s five Strategic Outcomes, namely; 32 122 • We have well-articulated quality-assured-qualifications and relevant professional designations that instil trust and meet the needs of the people; and • We have stakeholders and role-players who are aligned to deliver on the NQF.

During the period under review, the programme had three (3) planned targets.

The programme achieved two (2) or 66.7 per cent of the planned targets.
The SAQA board approved the SAQA Professional Body Model derived from the findings of the research report.

It has been reported that this model will provide a foundation for working with statutory and non-statutory professional bodies.

SAQA did not achieve the target to register qualifications recommended by Quality Councils that meet all SAQA’s criteria within four months of submission.
It was reported that the three qualifications were originally recommended for submission to the Qualifications Committee, but after further scrutiny, they met the requirements.

However, the qualifications were cleared too late for the November Qualifications Committee meeting and stood over to the February meeting, which resulted in a delay in registering these qualifications.

4.2.2.3.
4.2.2.3.

Programme 3: National Learners’ Record Database (NLRD) & Verifications The programme contributes to achieving two of the five Strategic Outcomes, namely; • We have well-articulated quality-assured-qualifications and relevant professional designations that instil trust and meet the needs of the people; and • We have stakeholders and role-players who are aligned to deliver on the NQF.

The programme had three (3) planned targets, of which one or 33.3 per cent was achieved.
SAQA did not meet the target to have all recognised professional bodies load professional designation achievements that meet the requirements, of NLRD.

Ninety-six of the 100 recognised professional bodies loaded data during the period under review.

SAQA did not complete all applications received for the verification of national qualifications within 25 working days.
The under-achievement was ascribed to the staff retrenchments resulting from the restructure, which contributed to the backlogs in this unit, and despite the use of temporary contract staff brought in to reduce the backlogs, the function was still not able to meet the targets.

SAQA reported that its Automation Project will address this issue.

33 123 4.2.2.4.
33 123 4.2.2.4.

Programme 4: Foreign Qualifications Evaluation and Advisory Services (DFQEAS) The programme is responsible for evaluating foreign qualifications and locating them on the South African NQF.

It contributes to one of the five Strategic Outcomes, namely; A dynamic NQF that is responsive, adapts to and supports the changing needs of life-long learning.

The programme had one planned target during the year under review.
The target to complete all compliant applications received for the evaluation of foreign qualifications within three months was not achieved.

The non-achievement was ascribed to the staff retrenchments resulting from the restructure, which contributed to the backlogs in this unit, and despite the use of temporary contract staff brought in to reduce the backlogs, the function was still not able to meet the target.

SAQA reported that its Automation Project will address this issue.
The Committee viewed the non-achievement in a serious light as it may impact the applicants’ ability to secure employment or study opportunities.

4.2.2.5.

Programme 5: Research The programme is responsible for conducting evidence-based research to track the development and implementation of the NQF and to evaluate the impact of the NQF on the people in South Africa.

The programme had three (3) targets for 2021/22 and achieved 100 per cent.
SAQA reviewed the Criteria for Registering Qualifications and Part-Qualifications on the NQF and the approved Policy is available on SAQA’s website; produced the Draft 2021 NQF Impact Study Reports; and collated a report on the progress made in implementing the Articulation Policy for 2021/22, which was approved by the Board for submission to the Minister.

4.2.2.6.
4.2.2.6.

Programme 6: International Liaison The programme is responsible for working with international partners on matters concerning qualifications framework and sharing best practices with stakeholders.

There were two targets under this programme and were achieved as planned.

SAQA implemented nine (9) initiatives to promote the South African NQF.

The planned target of two initiatives and the target was exceeded by seven (7).
The entity also exceeded the target 34 124 to identify and implement two (2) initiatives to share national and international best practices with stakeholders.

Six initiatives were identified and implemented.

4.2.3.

Overview and assessment of SAQA’s 2021/22 budget allocation and expenditure SAQA had total revenue of R139,32 million (R120,74 million in 2021/22), comprising of R50,80 million of revenue from exchange transactions and R88,51 million from non-exchange transactions.
Revenue from the rendering of services constituted 94.3 per cent of the total revenue from exchange transactions and 34.4 per cent of the total revenue of the entity.

Notably, there is a slight increase of R2,38 million in revenue from rendering services from R45,54 million in 2020/21.

At the end of the financial year, SAQA had spent R90,99 million, which constitutes 65.3 per cent of the total revenue, recording lower-than-projected spending amounting to R48.32 million.
The expenditure on employee costs amounted to R59,49 million, which constituted 65.3 per cent of the total expenditure for 2021/22.

Spending on general expenses amounted to R24,23 million.
The cost drivers in terms of the general expenses include amongst others; IT support and maintenance: R4,70 million, Consulting and professional fees: R3,75 million, Computer expenses: R3,11 million, Building costs (rates and taxes, security services and electricity and water): R3,99 million, and Auditor’s remuneration: R1,82 million.

4.2.4.
4.2.4.

Irregular, fruitless and wasteful expenditure SAQA incurred irregular expenditure amounting to R496 800 during 2021/22, which was ascribed to a non-responsive request for a quotation that was awarded.

SAQA did not incur fruitless and wasteful expenditure during the year under review.

4.2.5.

Contingent liabilities SAQA reported the two cases that were with the Commission for Conciliation, Mediation and Arbitration (CCMA) and the Labour Court respectively.
CCMA Case Matter1: Claim for SAQA staff members retrenched: Following the retrenchment of employees implemented by SAQA in May 2021 in line with section 189 of the Labour relations Act, 34, former staff members lodged a claim at the CCMA claiming unfair labour practice.

As of the 35 125 date of this annual report, the matter has not progressed following a referral from the CCMA to the Labour Court.

Labour Court Case • Matter 2: This relates to the former Manager of Client Services who was retrenched.
The applicant is seeking 12 months’ salary plus 7 per cent interest.

• Matter 3: The applicant referred the matter to the labour court on 22 February 2022.

The statement of defence was finalised and lodged in March 2022, and the estimated compensation is 12 months’ salary.

4.2.6.

2021/22 Audit outcomes SAQA obtained an unqualified audit opinion with findings for the 2021/22 financial year, which is a regression from a clean audit in 2020/21.
Audit findings • Annual Financial Statements: The AG noted that the financial statements were not fully prepared in accordance with the prescribed financial reporting framework, as required by section 55(1) of the PFMA.

Material misstatements of segment reporting and cash flow statements identified by the auditors in the submitted financial statement were corrected, resulting in the financial statements receiving an unqualified audit opinion.
• Internal control deficiencies: The AG noted the following: o Management did not ensure that an appropriate level of monitoring was established over the compilation of financial statements, which could have prevented a number of material findings; o Management did not ensure sufficient controls were in place to prepare adequate and complete financial statements that are supported and evidenced by complete and accurate information; and o Management did not implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information is accessible and available to support the financial statements.
4.2.7.

Future outlook 36 126 SAQA reported that in line with the MTEF Budget Guidelines, it has sufficient budget for the next financial year that is made of Government Grants as well as its own generated revenue.

The entity receives only 70 per cent of its funds from the fiscus and that compels it to generate revenue, which is always volatile and affected by both its mandate and its capacity to deliver.

4.3.
4.3.

Council on Higher Education (CHE) The CHE is an independent statutory body established in terms of the Higher Education Act, 1997 (Act No.101 of 1997, as amended).

It derives its mandate from the Higher Education Act, 1997 (Act No.

101 as amended) and the National Qualifications Framework Act, 2008 (Act No.

67 of 2008 as amended).
In terms of its mandate as per the two primary legislation, the CHE is responsible for the following: • Advising the Minister of Higher Education and Training on all higher education matters upon request and at its own initiative; • Promoting quality and quality assurance in higher education through its permanent sub- committee, the Higher Education Quality Committee (HEQC), including auditing the quality assurance mechanisms and accrediting programmes offered by higher education institutions; • Monitoring the state of higher education and publishing information regarding developments in higher education regularly, including arranging and co-ordinating conferences on higher education issues; • Developing and managing the qualification sub-framework for higher education, namely, the Higher Education Qualifications Sub-Framework (HEQSF), including the development of qualifications that are necessary for the higher education sector; • Recommending higher education qualifications to SAQA for registration on the NQF; • Maintaining a database of learners’ achievements and submitting the data for recording on the NLRD; and • Advising the Minister of Higher Education and Training on matters relating to the HEQSF.
The mandate is further premised on key policies; namely the National Development Plan: Vision 2030, the White Paper for Post-School Education and Training, the National Plan for 37 127 Higher Education, and the Medium-Term Strategic Framework 2019 – 2024: Priority 3: Education, Skills and Health, amongst others.

4.3.1.
4.3.1.

Overview and assessment of the CHE’s 2021/22 non-financial performance During the 2021/22 financial year, the CHE had a total of 50 planned targets, which were shared across the four budget programmes, namely; Management of the Higher Education Qualifications Sub-Framework (HEQSF), Quality Assurance, Research, Monitoring and Advice and Corporate.

The CHE achieved 48 or 96 per cent of the 50 targets, which is a significant improvement of 19.5 per cent from the 76.5 per cent achieved in 2020/21.
Summary of programme performance for the 2021/22 financial year is illustrated in Table: 5 below.

Table 6: The CHE’s Programmes, with their related achievement against performance targets for the 2021/22 financial year Programme 1.

Management of the HEQSF 2.

Quality Assurance 3.

Research, Monitoring and Advice 1.

Corporate Total APP Targets 2021/22 16 10 9 15 50 Achieved Not achieved % Achievement 15 10 9 14 48 1 0 0 1 2 93.8% 100.0% 100.0% 93.3% 96.0% 4.3.2.
Non-financial performance per programme 4.3.2.1.

Programme 1: Management of the HEQSF The programme manages the development and implementation of HEQSF policies, qualification standards and data to meet the goals of the NQF, NPPSET and NDP.

The programme contributes to one of the CHE’s five Strategic Outcomes: CHE as an effective custodian of the HEQSF.

During the year under review, the programme had 16 planned targets shared amongst the five sub-programmes.
The programme achieved 16 or 93.8 per cent of the planned targets.

38 128 Selected key achievements • Two qualification standards were developed and reviewed.

• The CHE conducted three events or projects to promote the use of qualification standards.

• Ninety-eight per cent of private education institutions have all required sets of data records in the database, against the target of 80 per cent.
• Four higher education institutions were supported with respect to the development and implementation of relevant institutional policies.

• The CHE was involved in five national events and/fora on NQF, quality assurance and promotion.

• Four quality fora and/or workshops were organised.

The target on number (2) of data uploads onto the NLRD in a particular financial year was not achieved.
There was one data upload and the CHE reported that there was no uploading onto the NLRD during the NLRD’s January/February 2022 data load cycle because of challenges encountered with the use of a service provider that owns validation software on which the data uploads rely.

A process had been put in place and with SAQA’s approval, the upload was made by end of June 2022.

4.3.2.2.
4.3.2.2.

Programme 2: Quality Assurance The programme contributes toward the fulfilment of the mandate of the CHE as the national authority for quality assurance in higher education.

The programme develops and implements processes to inform, assure, promote and monitor quality in Higher Education Institutions (HEIs).

For the 2021/22 financial year, the programme had 10 targets shared amongst the four sub-programmes.

The programme achieved 100 per cent of the planned targets.
Selected key achievements • Achieved 100 per cent (against the target of 85 per cent) of programme reaccreditation applications received that go through the accreditation process and are presented to the HEQC within 18 months from the date of appointment of evaluators.

• The CHE held 26 workshops (against the target of 10) related to the new framework for Institutional Audits.

The increase in the number of workshops was due to the requests by institutions.
• The CHE initiated 15 Institutional Audits (against the target of 10) and one National Review 39 129 • Achieved 100 per cent of the completed National Reviews had their reports finalised and approved.

4.3.2.3.
4.3.2.3.

Programme 3: Research, Monitoring and Advice The programme aims to revitalise and strengthen the research, monitoring, evaluation and advice capabilities of the CHE to advance the realisation of Outcome 3: A reputable centre of intellectual discourse, knowledge generation and advancement in higher education.

The programme had nine targets shared among the three sub-programmes.

The programme achieved 100 per cent of the planned targets.
Selected key achievements • The CHE produced three research reports, against a target of two.

• During the year under review, the CHE organised three conferences, colloquia, seminars, or symposia.

• The CHE produced two journals/journal articles or books/book chapters and four policy briefs or Briefly Speaking articles.

4.3.2.4.
4.3.2.4.

Programme 4: Corporate The programme provides leadership, oversight, systems, activities and structures that enable the organisation to operate effectively and efficiently in fulfilment of its mandates and pursuit of its outcomes.

The programme contributes to two of the CHE’s five Strategic Outcomes, namely; Strategic Outcome 4: Governance, compliance and risk management and Strategic Outcome 5: Sustainable, responsive and dynamic organisation.
The programme's 15 targets are shared amongst the four sub-programmes.

The programme achieved 14 or 93.3 per cent of the planned targets.

Selected key achievements • The CHE developed or reviewed 11 ICT policies, frameworks, guidelines and procedures.

• Nine Human Resources policies, frameworks, guidelines and procedures were developed or reviewed.

40 130 • Eighteen financial and supply chain management policies, frameworks, guidelines, and procedures were developed or reviewed.
• Thirty-four scheduled governance meetings were organised and held.

• Eighty-seven per cent of the approved posts on the organisational structure had incumbents.

• The CHE paid 100 per cent of eligible suppliers within 30 days from the dates of receipt of their invoices.

• The CHE produced 36 media releases, newsletters and other information resources for external stakeholders.

4.3.3.
4.3.3.

Overview and assessment of the CHE’s 2021/22 budget allocation and expenditure The CHE’s total revenue for the 2021/22 financial year amounted to R79.90 million (R76,16 million in 2020/21).

The revenue comprised R8,0 million of exchange revenue (accreditation fees: R6,67 million, Interests received from investment: R1,24 million and Other income: R85 783) and R71,90 million of non-exchange revenue (Government Grant).

The CHE’s total budget, including the rollover funds, amounted to R99,59 million.
At the end of the 2021/22 financial year, the CHE had spent R75,64 million or 75.7 per cent of the total budget of R99,59 million, recording lower than-projected spending of R23,97 million.
The underspending of cost of employees amounted to R864 973 and was ascribed to seven vacant posts that were not filled timeously due to unforeseen delays; including the budgeted applicable rates increase in the cost of living not paid as per instruction from the National treasury due to national budget constraints and labour disputes with labour unions in the country.

The bulk of the underspending, at 96.3 per cent was on goods and services.
The CHE reported that the underspending was due to fewer legal claims for the period under review and the cancellation of some governance meetings; the approved rollover of funds was received in October 2021 and was not fully spent because of the time taken to conclude IT procurement processes, as much as the funds were allocated to IT projects; less payment of Honorarium vouchers for national reviews, no international registration fees paid for the period under review; no printing of publication for Good Practice requested for the period under review; no 3G cards/data claims made by the peer academics for policy development and partnerships and collaboration project; non-usage of conference registration fees budget and less contracted Peer 41 131 Academics for the assessment of higher education institutions and less accreditation Evaluator claims.
The cost drivers in terms of the general expenses include amongst others; Peer academics: R12,04 million, IT expenses: R4,92 million, Consultancy services and Sub-committee members: R2,28 million, Remuneration of Council and Committee members: 2,02 million, Legal fees: R1,37 million, Auditors’ remuneration: R1,14 million and recruitment: R1,05 million.

4.3.4.

Irregular, fruitless and wasteful expenditure The CHE did not incur irregular expenditure for 2021/22.
However, it has incurred fruitless and wasteful expenditure amounting to R577,00 related to the interest charged on the late payment of a service provider invoice that was sent to an email of a resigned CHE official The CHE reported that the amount was written off as per Financial Misconduct Committee because the concerned employee was not found guilty of negligence.

4.3.5.

Contingent liability The CHE had unspent cash of R24,125,492 from the budget of the year under review.
This unspent cash is ordinarily supposed to be transferred back to the National Treasury according to section 53(3) of the PFMA.

The CHE has requested the retention of these funds from the National Treasury to cater for the commitments made as well as the development of the Quality Assurance Framework (QAF) MIS in the 2022-23 financial year.

4.3.6.

2021/22 Audit outcomes The CHE obtained an unqualified audit opinion with findings from the AG for the second consecutive audit cycle.
The material findings on compliance with the specific matters in key legislation are as follows: Audit findings • Financial Statements: The AG noted that the financial statements submitted for auditing were not fully prepared in accordance with the prescribed financial reporting framework, as required by section 55(1) (b) of the PFMA.
The AG identified material misstatements in the financial statements during the audit and identified errors in the classification of certain amounts within cash flows from operating activities on the face 42 132 of the Cash Flow Statement.

These misstatements were not prevented or detected by the entity’s system of internal control.
• Internal Control Deficiencies: Management did not implement controls to review the cash flow statement to ensure that the amounts disclosed in the financial statements presented for audit were free from material misstatement.

4.4.

Future outlook The CHE reported that 2022/23’s budget is under significant pressure as the institutional audits get fully underway, and it is highly likely that the budget will be fully spent.
The compensation of employees’ budget allocation is a severe limitation on the ability of the CHE to implement its full organizational structure and this will be even more of a challenge as the revised organizational structure to support the implementation of the new Quality Assurance Framework is finalised.

It was further reported that the CHE mandate is expanding, for example, it is taking over the Transformation Oversight function for the higher education sector.
The CHE will need to expand its work to cover the higher education colleges that are becoming part of the higher education sector.

These functions do require a resource injection to enable them to be executed effectively.

5.

OBSERVATIONS AND KEY FINDINGS The Committee, having assessed the 2021/22 Annual Reports of the Departments and entities, made the following observations and key findings.

5.1.

Department of Higher Education and Training 5.1.1.


Programme 1: Administration • The Committee has noted the improvements in the performance of this programme as the Department filled vacant positions within its stipulated timeframes and concluded disciplinary cases on time.

These were some of the two areas that the Department had been struggling to achieve in the previous years.
• It was noted that the employment of suitably qualified individuals with the requisite experience and skills remains critical in the HET portfolio, and the Department has an important role to oversee this process.

• The overall under-representation of people with disabilities in the PSET sector remains a concern.

43 133 5.1.2.

Programme 3: Planning, Policy and Strategy • The Department’s oversight and monitoring role over the PSET institutions remains a serious concern.
Furthermore, the Committee indicated that inadequate consequence management in the HET portfolio has resulted in some entities being repeat offenders in terms of poor financial management and audit outcomes.

• Notwithstanding the improved performance of 3.6 per cent during the year under review, from 70 per cent in 2020/21, the performance was not satisfactory considering that the Department had spent 99 per cent of its budget.
• The Committee welcomed the plan by the Department to develop the Master Skills Plan (MSP), which will incorporate all the different skills strategies of the country.

• The delays in the proclamation of the NQF Amendment Bill by the President were noted as a concern as this legislation has been with the Presidency since 2019.

The Department has also been engaging stakeholders on the second NQF Amendment Bill despite the first one being still pending proclamation.
• The inadequate implementation of consequence management in the PSET sector against officials responsible for the mismanagement of funds or underperformance remains a serious concern.

5.1.3.

Programme 3: University Education • The completion of the feasibility study for the establishment of a new University for Science and Innovation in Ekurhuleni was welcomed by the Committee.
The Committee also noted the report that work was still underway towards the completion of the Crime Detection University in Hammanskraal.

• The Committee welcomed the increased student enrolment (1.4 per cent achievement) and increased support of NSFAS-funded students (18 per cent achievement) in universities, notwithstanding the COVID-19 and lockdown restrictions experienced during the year under review.
• The Committee was concerned that there were university employees that were doing business with universities without declaring their conflict of interest as reported by the AGSA.

• Similar to TVETs, universities were also not subjected to report on their finances in accordance with the PFMA, and this was highlighted as a concern by the Committee noting that universities receive part of their revenue from public funds.
44 134 • The Committee noted the report by the Department that the Cabinet will consider the Ministerial Task Team Report and the proposed Student Funding Model in November 2022.

The Committee is concerned about the readiness of the institutions and NSFAS to implement funding decisions that will arise from the new funding model for the 2023 academic year, given that the implementation of the new funding model is targeted for 2023.
• The Committee was seriously concerned about the dual registration of students at universities, as this has implications the ability of NSFAS to pay students on time.

5.1.4.

Programme 4: Technical and Vocational Education and Training • The underperformance of the system targets (6 out of 13 targets achieved) recorded by this programme during the year under review was noted as a concern.
• The Committee welcomed the eight (8) new TVET colleges campuses (Msinga, Umzimkhulu, Nongoma, Aliwal North, Ngqungqushe, Graaf Reinet, Thabazimbi and Nkandla) that have reached 100 per cent completion and that the remaining 13 sites were between 66 per cent – 99 per cent complete.

• Concerns were raised with the financial management and internal audit capacity of TVET colleges.
The AGSA had reported that 44 out of the 50 TVET colleges were unable to produce financial statements that are free from material misstatements.

As a result, they rely on the AGSA to identify the misstatements despite them having internal audit units.

• Concerns were raised regarding inadequate information and communication technology (ICT) infrastructure and connectivity, which had a negative impact on the enrolment of students in the TVET sector during the year under review.
• The poor certification rates of the NC(V) including the NATED programmes remains a concern.

• The absence of a standardised policy framework for financial reporting by TVET colleges remains a concern.

As a result, the AGSA experienced difficulties with auditing TVET colleges since they have different policies and procedures relating to procurement and contract management.
• The Committee was concerned that TVET colleges were still not subjected to account for their finances in terms of the PFMA, Act 2000.

It was noted that colleges receive 45 135 their subsidies from public funds, and they should be able to account for such in terms of the PFMA.

• The decline in irregular expenditure in TVET colleges from R32 million to R16 million during the year under review was noted.

• The absence of an effective asset management system in the TVET sector remains a concern.
• The underfunding of the TVET sector remains an ongoing concern for the Committee, and there has not been new funding for the TVET sector to support its expansion and development.

• The opening of 32 trade test centres in TVET colleges during the year under review was welcomed by the Committee.

This will contribute to increasing the number of artisans.
• The increase in the number of centres of specialisation which are aimed at making colleges respond to local and regional industry needs by specialising in particular trades was welcomed by the Committee.

5.1.5.

Programme 5: Skills Development • The Committee noted the impact of COVID-19 and lockdown restrictions on the achievement of targets in the skills programme.
The majority of the workplaces and trade test centres were closed during the lockdown period and this resulted in the non- achievement of targets in artisanal training programmes.

• The Committee noted with concern the discrepancies identified by the AGSA during the auditing and analysing of data from different SETAs to obtain deeper insight into the offering of their skills interventions.
Some discrepancies identified by the AGSA were shocking, for example, learners enrolled in multiple SETAs, deceased learners reported to have been enrolled even when they were deceased before the training programme commenced, learners over 65 years enrolled in skills programmes and learners who received bursaries from NSFAS and SETAs.

The Committee ascribed the findings to poor monitoring and evaluation of the service providers implementing skills development interventions funded by the SETAs.
Additionally, the Committee was of the view that there might be corruption by some SETA employees, working together with service providers appointed to deliver training programmes.

46 136 • The Committee supported the AGSA’s proposal that SETAs would benefit from having an integrated system, which will enable data sharing among SETAs in relation to their funded interventions.
• Inadequate governance and poor financial management controls remain a serious concern in some SETAs, such as the Services SETA and Construction SETA.

5.1.6.

Programme 6: Community Education and Training • The underperformance by the CET programme on system targets was noted as a concern, as only one of the four targets was achieved.

• The Committee indicated that the CET sector needs support and requisite funding to expand and fulfil its intended objectives.
• The hosting of the CET Summit in March 2022 was a notable development for the sector and the Committee wished that the Summit resolutions would go a long way towards developing the sector going forward.

• The training of 249 CET lecturers in the CET sector was noted and the Committee urged the Department to expand this training programme to improve the performance and learning outcomes of the sector.
• Underfunding of the CET sector remains a concern given that up to 80% of the budget dedicated to the sector is directed towards the compensation of employees.

CET colleges mostly depend on the infrastructure provided by schools for their teaching and learning.

Moreover, there is insufficient funding for operations and related costs for the sector.

5.2.
5.2.

Quality Council for Trades and Occupations • The sixth consecutive clean audit achieved by the entity was commendable and the Committee commended the staff of the entity for their commitment and hard work.

• The delays in the filling of vacant funded positions and the filling of vacant positions on the entity’s Council, including the appointment of a permanent Chairperson remain a concern.
The Acting Chairperson has been in that position for two years despite commitments from the Department that the position would be filled.

• The Business Case of the entity has not yet been approved by the Department although the engagements started in 2017.

The plan was for the entity to take over the quality assurance role of the SETAs, however, to date, the entity still shares this responsibility with SETAs through service-level agreements.
The delays in the approval of the entity’s Business Case 47 137 has implications in terms of its funding and operations.

The entity’s approved organogram has 246 posts.

However, in real terms, it can only fund 110 posts.

• The delays in the finalisation of the processes put in place by the entity to purchase the premises it currently leases was noted with concern.

The Committee has been recommending to the Department to fast-track the process in the approving of the purchasing of the premises.
The Committee noted the report that the Minister was considering a response from the QCTO on the issues that were raised with regard to its approval request.

• The improvement in the entity’s performance, 77 per cent for the year under review, from 64 per cent in 2020/21 was welcomed.

The entity implemented its planned activities as per the approved 2021/22 Annual Performance Plan despite the budget cuts, due to the reduced SETA levy grant from R97,2 million in 2020/21 to R67,7 million in 2021/22.
• The approval of the Occupational Qualifications Sub-Framework (OQSF) during the year under review was welcomed by the Committee as a positive development which would position the entity as a key role player in the PSET sector.

• The slow uptake of occupational qualifications and skills programmes by TVET colleges remains a concern as these programmes are critical in equipping students with much- needed skills to become active participants in the economy.
• The proposed offering of the OQSF-aligned qualifications by higher education institutions and skills programmes by CET colleges was noted as a positive development for the entire PSET system.

5.3.

South African Qualifications Authority • The Committee expressed its gratitude to the outgoing CEO, Dr Reddy, who had served the entity with excellence during her tenure and wished her well in her future endeavours.
It also welcomed the smooth transition to the newly appointed CEO, Ms Starr, who also has been part of the entity and would take over from 1 December 2022.

• The entity’s achievement of 80 per cent of its targets during the year under review was commended, noting that it had retrenched 73 staff members due to financial difficulties.
• The confidence and commitment to women's empowerment as evidenced by the entity in appointing women to occupy strategic positions in its senior management positions is highly commended.

The Board Chairperson and CEO of the entity were women.

48 138 • The delays by the entity in completing applications received for verification of qualifications and its possible impact on the applicants were noted as a concern.
Compounding this situation was the amount of information and records that were still not digitised by SAQA, which impacts the turn-around time.

• The delays in the implementation of the fully functional automation system to improve the verifications and related functions of the entity remain a concern.
It was noted that the implementation of the automation project will assist the entity in the speed-up of the verification processes considering its reduced human resource capacity and also position it as a key role player in the verification of qualifications.

• The underspending amounting to R48 million during the year under review was noted as a concern noting that the entity has retrenched employees during the year under review.
• The Committee commended SAQA for implementing consequence management without fear of favour.

Swift action was taken by the entity in suspending its CFO for underperformance and suspicious activities.

The Committee has been advocating for consequence management to be implemented against underperformance in public entities.
• The entity has regressed from a clean audit opinion in 2020/21 to an unqualified audit opinion with findings in 2021/22, and the Committee encouraged the entity to put measures in place to ensure that it achieves a clean audit.

5.4.

Council on Higher Education • The delays in the filling of funded vacant positions during the year under review were noted as a concern.

The Committee also noted that the entity relied mostly on contract appointments due to the limited budget for compensation of employees.
• The quality of the curriculum for the initial teacher education programme, in particular at the University of South Africa (UNISA) was noted as a concern.

It was further noted that UNISA is among the institutions that produce the highest number of graduates in teaching and the weakness in its programme needs to be rectified.
• The offering of legacy qualifications that have reached their teaching-out period in some universities, and how this impacts the funding of students who are enrolled in these programmes was noted as a concern.

It was further noted that NSFAS is unable to fund these programmes, and students registered in some of these programmes need to find alternative means to fund their studies.
Thus, it is critical for the CHE to work with SAQA and DHET to ensure that such qualifications are no longer offered by universities.

49 139 • The lack of standardisation of advanced diplomas by some universities as reported to the Committee by NSFAS was noted with concern and the CHE and SAQA were requested to look into the matter.

• The lack of representation of the minority groups such as Indian and White people, including people with disabilities (PWD) in the entity remains a concern.
• The delays in the filling of the Board Chairperson position, which was vacant since 14 July 2022 were noted with concern.

Furthermore, the Committee noted that the term of the current Board was coming to an end soon and requested the Department to put in place measures to fill the positions to ensure a smooth transition.

• The transfer of the Transformation Oversight function to the CHE was welcomed, given the proliferation of racial incidents in institutions of higher learning.
However, the Committee noted that the function shift to the CHE was not followed by the requisite funding.

Thus, this would impact the ability of the entity to meaningfully fulfil this critical function.

• The responsiveness of the programme offerings by universities to the changing world of work is critical for building the economy.

6.
6.

RECOMMENDATIONS The Committee, having assessed the 2021/22 Annual Reports of the Department and entities, recommends that the Minister of Higher Education, Science and Innovation and the Minister of Finance consider the following: 6.1.

Department of Higher Education and Training 6.1.1.

Programme 1: Administration • The Department ensures that there is an improvement in the appointment of people with disabilities in the PSET sector to promote an inclusive work environment.
• The Department ensures that the employees appointed to occupy positions in the PSET institutions possess suitable qualifications and the requisite experience.

The appointment of unqualified and underperforming employees in the PSET system has a negative impact on the performance and audit outcomes of these institutions.
• The Department put measures in place to address internal control deficiencies and improve its audit outcomes from unqualified audit opinion with findings to achieve a clean audit in the 2022/23 financial year.

50 140 • The review of the Department’s organogram should consider the need to review the organogram of TVET colleges to strengthen their financial and supply chain management capacity.
• The appointment of the Board/Council Chairpersons and members of public entities in the HET portfolio be expedited to minimise the governance vacuum.

6.1.2.

Planning, Policy and Strategy • The monitoring and evaluation systems of the Department over PSET entities need urgent improvement to strengthen the accountability ecosystem of the PSET sector.
Closer monitoring of these institutions will assist the Department in assessing the implementation of corrective actions that are needed to turn around the performance and audit outcomes of PSET institutions.

• The Department and PSET institutions, take appropriate steps to effectively deal with transgressions by officials involved in corruption, maladministration and underperformance at public entities.
Meaningful implementation of consequence management in the PSET sector will contribute positively towards deterring irregular conduct and underperformance.

• Consideration should be given to legislation reviews, which will enable universities and TVET colleges to account in accordance with its regulations.

Reporting in accordance with the PFMA regulations will also compel these institutions to be more transparent in terms of the utilisation of public funds allocated to them.
• Intervention strategies should be developed to overcome the perennial areas of underperformance in the programmes of the Department.

• The strengthening of good governance and accountability in the PSET sector ecosystem remains a priority for the Department.

6.1.3.

University Education • The finalisation of the feasibility study report into the establishment of a University for Crime Detection in Hammanskraal be expedited.
The Department should quantify the costs involved in the establishment of the two new universities in Gauteng, and have clear timeframes on all processes involved towards their establishment.

• The finalisation of the MTT Report on Student Funding Model for the PSET sector should be expedited so that it can be implemented in 2023 as per the Annual Performance Plan 51 141 (APP) 2022/23.

The Department also needs to consider inputs from the FFC before finalising this report.
• The Department institutes a forensic investigation to determine the extent of dual registration and double dipping by students in universities and the implications of this on funding of the NSFAS beneficiaries.

• Working in collaboration with NSFAS, the Department ensures that the NSFAS applications portal is user-friendly.
• Consideration should be given to systemic investment into the remote teaching and learning modalities post-COVID-19 period at universities to enable students to access this new approach of accessing higher education.

The limited university infrastructure is unable to meet the demand for higher education, thus blended learning can be further explored.

6.1.4.
6.1.4.

Programme 4: Technical and Vocational Education and Training • The standardisation of policies relating to procurement, contract management and financial reporting should be expedited in the TVET sector.

The standardised framework or guidelines will assist colleges to prepare adequately for auditing by the AGSA and possibly contribute to improvement in their audit outcomes.

• Intervention strategies be put in place to address the recurring under-performance of the system targets.
• The adaptation to alternative means of teaching and learning such as remote learning was very slow in the TVET sector during the lockdown period.

Consequently, the sector experienced a decline in its enrolment and academic performance.

TVET colleges need to embrace and implement digital transformation.

• The alignment and relevance of the TVET sector curriculum content with industry needs is critical.
Strong partnerships with industry will expand opportunities for work-based learning for TVET students and also prepare them for the world of work.

• The lecturers’ development and training programmes be expanded to equip TVET lecturers with the necessary skills and pedagogy to improve the academic learning outcomes of the sector, especially for the NC(V) Level 4 and NATED 6 programmes.
Similarly, student support services need to be better resourced to help students with programmes aimed at improving their academic performance.

• Additional support should be given to colleges to improve their capacity in offering occupational and skills programmes aligned to the OQSF.

52 142 • The roll-out of capacity development and training programmes on financial management be prioritised to assist college employees with the requisite skills to produce credible financial statements.
• Underspending on capital infrastructure efficiency grants (CIEG) in the TVET sector remain a concern, and colleges need to be provided with additional support on procurement and project management.

The Department should update the Committee on the impact of their capacitation programme.

6.1.5.
6.1.5.

Programme 4: Skills Development • The Department institutes a forensic investigation into the extent of malpractices in the execution of SETAs’ skills development interventions as reported in the AGSA’s value add findings within a month after the adoption of the BRR Report by the NA.
• The Department develops an integrated information management system for SETAs, which will enable seamless data exchange among SETAs in relation to their skills development interventions, including the beneficiaries thereof.

This system will also enable SETAs to detect irregularities and discrepancies by service providers and beneficiaries of skills development programmes.
An implementation plan, with timeframes for the integrated information management system for the SETAs, should be submitted to the Committee within three months of the adoption of the BRR Report by the National Assembly (NA).

• The Department should enforce the provision of the White Paper for PSET on the ring- fencing of the SETA bursary allocation to NSFAS to prevent duplication of services.
• The Minister should expedite the approval of the QCTO’s submission for purchasing the premises so that it can save money from rental expenses to fund other skills development priorities.

• The clearance of the certification backlog in the SETAs should be prioritised so that beneficiaries can get their certificates and be able to utilise them to pursue further learning or employment opportunities.
• Corrective measures should be taken concerning recurring poor performance and audit outcomes by some SETAs.

6.1.6.

Programme 6: Community Education and Training • Additional support and resources are needed for the CET sector to deliver on its core mandate and to function optimally.

53 143 • The implementation of the recommendations coming from the CET Summit in March 2022 be expedited.

• CET lecturers be provided with the training and skills needed to offer skills programmes aligned to the OQSF.
The skills programmes for CET colleges will assist them in responding to their respective local and regional economic needs.

• The Department working with the municipalities, public works and other relevant authorities need to identify under-utilised public infrastructure to be used as community learning centres to minimise the over-reliance on schools’ infrastructure for CET programmes.

6.1.7.
6.1.7.

Budget considerations • The Department needs additional funding to increase the enrolment of students in the TVET and CET sectors.

Even though the budget of the Department is projected to increase over the MTEF period, it remains inadequate to meet the NDP targets for enrolment in the TVET and CET sectors and also inadequate to address the funding needs of the missing middle and post-graduate students who are unable to secure funding from other bursaries.
• The Department’s cost pressures and unfunded priorities over the MTEF period amount to R12,6 billion.

notwithstanding the current fiscus constraints, the Committee recommends that consideration be made to allocate additional funding to the Department to meet its objectives.

Spending on priorities of the PSET system is an investment in human capital and is critical for sustainable development.

• The inequities in the funding of various programmes within the Department need to be reviewed.
There is a massive gap between the funding of University Education and other core delivery programmes such as TVET and CET.

Up to 80 per cent of the Departmental budget is reserved for transfers to universities and NSFAS.

This trend is not sustainable considering the need to promote increased access and success to TVET and CET colleges.

Thus, equity in the distribution of resources in the PSET sector should be prioritised.
• The Department should review the subsidy allocated to the CHE since it is unable to fulfil the objectives of the entity.

The entity relies on the utilisation of its roll-over funds to meet some key performance indicators and this is not sustainable.

The entity is also unable to fund its revised organisational structure due to limited funding.
• Additional funding should be considered for the QCTO to fulfil its mandate in line with its revised organisational structure and additional mandate of taking over the quality assurance 54 144 role of the SETAs.

Thus, the approval of its Business Case and the review of the SETA Grant Regulations to address the QCTO funding requirements should be expedited.

6.2.

Quality for Trades and Occupations • The entity considers working closely with the SETAs to assist them in clearing the certification backlog.
• The filling of the outstanding vacancies be expedited at the entity to increase its capacity and performance.

• The entity, working closely with the Department embarks on an advocacy campaign to promote the importance and uptake of occupational and skills programmes, especially by TVET colleges.

6.3.

South African Qualifications Authority • The entity puts measures in place to improve the turn-around time for the verification of qualifications.
This will also enable the entity to generate more revenue by processing more qualifications within timeframes.

• SAQA considers investing in block-chain technology to expand the verification function to include verification of curriculum vitae (CVs) to make the entity financially sustainable going forward.
• The entity submits an audit action plan within one month after the adoption of the Committee’s BRRR, which contains a clear timeframe for improving audit outcomes to achieve a clean audit in the 2022/23 financial year.

• The entity puts measures in place to reduce underspending and to curb irregular expenditure.
• The digitisation of old records (qualifications / part-qualifications) and their inclusion into the National Learner’s Records Database (NLRD) should be expedited so that the entity can improve the turn-around time of verification of these records.

• SAQA working with the CHE and DHET should ensure that the legacy qualifications/part qualifications that have reached teach out time are deregistered from the NQF.

6.4.
6.4.

Council on Higher Education • The entity expedites the filling of vacant posts and puts measures in place to attract people with disabilities and minority groups into the entity.

55 145 • Working with the Department and SAQA, the entity ensures that universities do not offer qualifications or part qualifications that are not aligned to the Higher Education Qualifications Sub-Framework (HESQF).
• The entity puts mechanisms in place to achieve a clean audit for the 2022/23 financial year and reduce over-spending on its subsidy allocation from the Department.

• The entity needs additional funding from the Department to support the work of the Transformation Oversight function for higher education.
Transformation in higher education has different dimensions, all of which are important, and the work of the CHE in this regard will be critical in advising the Minister about the best possible practices for a transformed higher education sector.

• The entity needs additional funding which will cover the employee costs for the 2023/24 to 2025/26 MTEF period so it can implement its revised organisational structure with additional mandates.

Report to be considered 56 146 National Council of Provinces 1.
REPORT OF THE SELECT COMMITTEE ON FINANCE ON THE 2022 REVISED AND PROPOSED FISCAL FRAMEWORK, DATED 08 NOVEMBER 2022 The Select Committee on Finance, having considered the revised and proposed fiscal framework referred to it, reports as follow: 1.

INTRODUCTION AND BACKGROUND 1.1.

The Minister of Finance, Mr Enoch Godongwana, tabled the 2022 Medium-Term Budget Policy Statement (MTBPS) in Parliament on 26th October 2022 in terms of Section 27 of the Public Finance Management Act (PFMA), Act No.
1 of 1999 and Section 7 (1) of the Money Bills Amendment Procedure and Related Matters Act (Money Bills Act), Act No.

9 of 2.

1.2.

The Minister, the Acting Director-General, Mr Ismail Momoniat, and senior officials from the National Treasury (NT) and the South African Revenue Services (SARS) briefed a joint sitting of the committees on finance and appropriation on 27th October 2022.
The Committees received post-Budget tabling input from the Parliamentary Budget Office (PBO) and the Financial and Fiscal Commission (FFC) on 01 November 2022.

1.3.
1.3.

The Committees held public hearings on 2 November 2022 and received a total of 6 written submissions from the Congress of South African Trade Unions (COSATU), 1 147 Institute for Economic Justice (IEJ), Public Economy Project (PEP), South African Institute of Chartered Accountants (SAICA), Budget Justice Coalition (BJC) and Healthy Living Alliance (HEALA).

1.4.
1.4.

NT and South African Revenue Service (SARS) responded to the issues raised during the public hearings and engaged with the Committee and stakeholders on 04th November 2022.

2.

POLITICAL OVERVIEW 2.1.

The Minister of Finance stated that one of the things that National Treasury was trying to do, in a difficult political environment, was to manage the trade-offs.

He reminded Members that over the past few years, more money was given to the state-owned enterprises (SOEs) and grants.
He said that this undermined spending on baseline departments and frontline services.

2.2.

The Minister said that starting from Budget 2022 and this MTBPS, National Treasury has been trying to grapple with these trade-offs, that is why it has been able to give more money for teachers and the police.

He said that while National Treasury was trying to address these issues, SOEs remained a formidable challenge.
He said that SOEs which had a strategic importance in the economy presented a moral hazard, as they made it difficult for the National Treasury to simply “walk away from them in the current environment.” 2.3.

However, the National Treasury is reprioritising resources and beginning to put more money on infrastructure and social services such as education and the police, the Minister said.
He said that were it not for the extension of the Social Relief of Distress (SRD) grant (implemented by Government during the period of Covid-19), National Treasury would have put more resources into infrastructure and social services.

He said that the extension of the SRD grant was imposing another trade-off, as for example 2 148 Government intended to employ 30,000 police officers but had to reduce that number to 15,000 new police officers in the next financial years.

2.4.
2.4.

The Minister emphasised that Government had not reduced spending on social services.

He said that he wanted Members to understand the fiscal strategy in terms of prioritisation, infrastructure and social services.

He emphasised that there was a growth element in investing in more infrastructure, while also prioritising meeting the basic needs of the people.

He said that this was the balancing act that the National Treasury was trying to achieve.

2.5.
2.5.

The Acting DG, Mr Momoniat, stated that the good message out of the 2022 MTBPS was that South Africa was restoring the health of its public finances at the time when there was a real slowdown in the global economy.

He said that there were very bleak projections in the global economy with high inflation, the impact of Covid-Zero in China and its impact on supply chains, and the ongoing Russia-Ukraine conflict.
He said that these issues were having a huge impact and inducing real shocks in some economies, citing the recent unfunded mini budget in the United Kingdom (UK) which was swiftly rejected by the markets.

2.6.

Mr Momoniat stated that global risks were significant and the National Treasury would have to take them into account, including the impact of interest rates increases in the United States of America (US) and the UK, which are South Africa’s trading partners.
He said that these risks will have an impact on many emerging economies.

He said that the message from the global economic outlook was that it is going to be “a rough next six months and perhaps even rougher next year” and Members of Parliament needed to take cognisance of it.

Mr Momoniat emphasised that in the current global environment, 3 149 National Treasury needed to be a bit more fiscally prudent than it would have normally been.

2.7.
2.7.

He said that what worked in South Africa’s favour was the higher than anticipated revenues, which have reduced the gross borrowing requirement of Government and enabled the fiscal framework to prioritise key spending areas for frontline services like health, education and policing.

He added that National Treasury had also put more money on infrastructure so that the budget began to have more of a growth orientation.

2.8.
2.8.

He explained that fiscal consolidation had really helped to put the country on a good course, emphasising that in 2023/24, a primary budget surplus of 0.7 per cent of GDP is expected.

He clarified that there was still a budget deficit, and that the country must continue paying huge debt servicing costs but would not be borrowing to pay interest.

He said that this helped to stabilise the public debt even as Government was considering taking on a portion of Eskom’s R400 billion debt.
He said that Government will be able to do this despite the global and the local shocks such as the KZN flood damage that took place in April 2022.

He noted that these events shocked the fiscal framework in a significant way.

3.

OVERVIEW OF 2022 REVISED AND PROPOSED FISCAL FRAMEWORK Revised Economic Outlook 3.1.
In 2021, the South African economy rebounded strongly from the COVID-19 pandemic, with Gross Domestic Product (GDP) growth averaging 4.9 per cent despite the impact of the July 2021 unrests, electricity supply constraints and slow implementation of economic reforms.

Over the past two years, higher global commodity prices, a strong 4 150 rebound in global economic activity and the easing of COVID-19 restrictions continued to support economic growth and improve export performance and revenue.

3.2.
3.2.

The 2022 Budget projected economic growth of 2.1 per cent in 2022/23.

Like the South African Reserve Bank’s (SARB’s) projection in September 2022, this has been revised down to 1.9 per cent.

A downward revision of economic growth can be attributed to slower global growth; impacts of flooding in KwaZulu-Natal and the Eastern Cape provinces; industrial action in certain sectors of the economy; persistent electricity supply constraints; high inflation; and low levels of investment and employment.

3.3.
3.3.

The 2022 MTBPS reported that since the tabling of the 2022 Budget, global and domestic risks to the economic outlook have materialised.

GDP growth is expected to average 1.6 per cent in the next three years.

The National Treasury expects GDP growth over the medium term to be supported through implementing economic reforms, particularly within the energy sector, stable public finances and medium-term spending increases.
The negative impact of the pandemic on employment and investment decisions is expected to weigh on the recovery over the medium term.

3.4.

Risks to the global and domestic outlook include unresolved structural constraints to growth, slower global growth, continued tightening of monetary policy, increased power cuts, a deteriorating fiscal outlook due to unfunded spending pressures and, the materialisation of contingent liabilities.
Table 1: Macroeconomic performance and revised projections Real percentage growth Household consumption Gross fixed capital formation Real GDP growth Consumer price index (CPI) inflation Current account balance (% of GDP) Source: SARB and National Treasury 2021 2022 Actual Estimate 5.6 2.9 1.6 1.7 1.8 0.2 4.0 1.9 3.6 3.8 Forecast 2024 2023 2025 4.9 1.9 1.4 1.7 1.8 4.5 6.7 5.1 4.6 4.6 -1.2 3.7 0.2 -1.1 -0.9 5 151 3.5.
Table 1 above shows that the inflation rate is expected to revert to the set target range of 3-6 per cent over the medium-term.

Headline Consumer Price Inflation (CPI) is expected to bridge the target range in 2022 and average 6.7 per cent.

Headline CPI is largely driven by increases in the prices of food, oil, electricity and other administered prices.

The SARB continued to tighten monetary policy, increasing the repurchase rate by a cumulative 275 basis points to 6.25 per cent, from November 2021.
3.6.

The 2022 MTBPS reported that 2.3 million people lost their jobs during the COVID-19 pandemic.

The 2022 Second Quarterly Labour Force Survey (QLFS) from Statistics South Africa shows that the number of employed persons increased by 648 000 to 15.6 million while the rate of unemployment measured at 33.9 per or 8 million persons.
While fiscal policy supports economic growth through investment in public infrastructure, NT stressed that South Africa’s economic growth rate remains too low to address its poverty and unemployment challenges.

Revised and Proposed Fiscal Framework 3.7.


The National Treasury’s medium‐term fiscal strategy is focused on reducing the fiscal risks in the short term, narrowing the budget deficit and stabilising debt, while proposing measures to enhance economic growth and restore funding for infrastructure and service delivery programmes.

3.8.

Table 2 below shows that the consolidated revenue is expected to increase to R1.88 trillion in 2022/23 (an upward revision of R83 billion), reaching R2.22 trillion in 2025/26.
Since the 2022 Budget, revenue collection has exceeded projections across most major tax categories.

According to National Treasury, the higher revenue estimate is largely due to better-than-expected collections in the final quarter of 2021/22, upward 6 152 revisions to near-term tax base growth projections and strong Corporate Income Tax (CIT) collections.

3.9.

While contribution from the increased commodity prices has waned, there has been a broad-based recovery in CIT collections.
The National Treasury however cautioned that these revenue projections may be lowered if power cuts intensify, global growth slows further or there is an escalation in the Russia-Ukraine war.

The tax-to-GDP ratio is expected to increase from 24.9 per cent in 2021/22 to 25.3 per cent in 2022/23.

Further improvement depends on a durable economic recovery.
Table 2: Consolidated 2022 fiscal framework R billion/percentage of GDP Revenue Expenditure Budget balance Gross loan debt Net loan debt 2021/22 Outcome 2022/23 Revised estimate 2023/24 2024/25 2025/26 Medium-term estimates 1 750.4 1 882.2 1 952.8 2 072.2 27.8% 2 047.0 32.6% -296.7 -4.7% 4 277.5 68.0% 28.3% 2 205.3 33.2% -323.1 -4.9% 4 752.0 71.4% 27.7% 2 241.7 31.7% -288.9 -4.1% 5 002.2 70.8% 27.5% 2 364.1 31.4% -291.9 -3.9% 5 296.1 70.4% 4 011.1 4 508.3 4 849.4 5 190.8 63.8% 67.8% 68.7% 69.0% 2 218.7 27.7% 2 477.7 30.9% -259.0 -3.2% 5 607.8 70.0% 5513.4 68.8% Source: National Treasury 3.10.
The consolidated expenditure in 2022/23 is now estimated at R2.21 trillion, R2.24 trillion in 2023/24 and almost R2.5 trillion in 2025/26.

Compared with the 2022 Budget estimates, the government proposes a net addition of R37 billion to the main budget non-interest spending in 2022/23.

This consists of R54.1 billion in spending increases, partially offset by declared unspent funds, projected underspending and contingency 7 153 reserve drawdowns.
Overall, the social wage will take up 59.4 per cent of total non- interest spending over the medium term.

3.11.

Additional resources are provided over the medium-term for the security forces, health, education, local amenities and infrastructure investment.
Government is also allocating funds to reduce fiscal and economic risks posed by Denel (R204 million to reduce contingent liabilities and an additional R3.4 billion for the turnaround plan implementation), South African National Road Agency Limited (SANRAL) (R23.7 billion) and Transnet (R5.8 billion) and plans to take over a portion of the R400 billion Eskom debt.

3.12.

The consolidated budget deficit is now projected to narrow from 4.1 per cent of GDP in 2023/24 to 3.2 per cent of GDP in 2025/26.
According to the National Treasury, South Africa’s fiscal policy is achieving its objectives of closing the gap between revenue and non-interest spending.

In 2023/24, a primary budget surplus of 0.7 per cent of GDP is projected as revenue collection has exceeded projections.

In the current year, the government will use 65 per cent of the projected additional revenue to improve its primary balance, followed by 45 per cent in 2023/24 and 37 per cent in 2024/25.

3.13.
3.13.

The National Treasury expects the gross loan debt to stabilise at 71.4 per cent of GDP in 2022/23, which is two years earlier and at a lower level than projected in the 2022 Budget Review.

Debt stabilisation in the current year reflects the impact of several changes since the Budget 2022.

Net public debt will stabilise at 69 per cent of GDP in 2024/25.

The improvement in the pace of debt stabilisation is largely a result of higher- than-anticipated inflation and revenue.
It will be partly offset by the materialisation of fiscal risks, including a planned takeover of Eskom’s debt.

3.14.

NT reported that since 2007/08, South Africa’s public debt has risen sevenfold, from R577 billion to over R4 trillion in 2021/22.

As a result, debt-service costs are expected 8 154 to rise from R303.7 billion in 2022/23 to R332.2 billion (4.7 per cent of GDP) in 2023/24, reaching R380.7 billion (4.8 per cent of GDP) in 2024/25.
Compared with the 2022 Budget estimate, debt-service costs will increase by R5.9 billion to R307.7 billion in 2022/23.

3.15.

NT cautioned that the materialisation of various fiscal risks could negatively affect the fiscal position and the government’s effort to stabilise the public finances.
Risks to the fiscal outlook include further slowdowns in economic growth, higher-than-budgeted public-service wage costs, contingent liabilities of state-owned companies, continuous electricity-supply constraints and the introduction of unfunded spending programmes.

4.

INPUTS FROM CONSTITUTIONAL AND STATUTORY INSTITUTIONS Financial and Fiscal Commission 4.1.
On the macro-economy, the FFC highlighted that as a small open economy heavily dependent on commodity exports, South Africa is exposed to global developments.

According to the Commission, macro-policy uncertainty, patchy policy implementation, low rates of fixed capital investment, deficient and intermittent power generation are weighing heavily on economic growth.
Also, the impact of load shedding, the Transnet strike, cumulative increases in interest rates and, the resulting rising cost of living represented a risk to the fiscus and the fiscal consolidation exercise.

4.2.
4.2.

The FFC further cautioned that if the Financial Action Task Force (FATF) greylisting materialises, it will dampen the prospect of economic growth as foreign investors may 9 155 become reluctant to do business in South Africa, raising rating concerns at many international institutions and leading to capital outflows.

4.3.
4.3.

On fiscal policy, the FFC noted that the impact of the Covid-19 pandemic, the Ukraine war, and the inflation shock has been cushioned by the improvement in the country's fiscal fortunes as a result of improved revenue projection.

As a result, the 2022 MTBPS presented a better-looking fiscal metrics than the 2022 Budget due to the commodity boom resulting in windfall mining profits and revenue overruns.
The FFC said that despite the projected primary budget surplus in 2023/2024 and the stabilisation of the gross government debt at 71.4 per cent of GDP in 2022/23, the FFC expects low growth and rising borrowing costs to continue increasing debt-service costs over the medium term, as the increases in CIT receipts is unlikely to become permanent.

4.4.
4.4.

The FFC supported the stance taken not to use the revenue windfall to fund permanent spending increases, but primarily to address some critical issues at strategic SOEs, to counteract the effect of the pandemic, reduce debt, and support growth.
Regarding expenditure pressures on the fiscus and sustainability of public finances and SOEs, the FFC noted that the 2022 MTBPS extended the Social Relief of Distress (SRD) grant for another year but did not provide details on a permanent Basic Income Grant (BIG).

According to the FFC, the fiscal framework's credibility and sustainability depends on the consistency of the policy stance of fiscal consolidation.

4.5.
4.5.

The FFC further noted the identified risks to the fiscal framework which include the materialisation of a higher-than-budgeted wage agreement, a permanent extension of the SRD grant without a corresponding permanent increase in funding, the financial support for strategic SOEs, and the poor financial health of most SOEs.

The FFC noted that by 2024/25, contingent liabilities are expected to exceed R1 trillion.
It emphasised that the deepening energy crisis, high inflation rate, the possible grey-listing of South 10 156 Africa by the FATF, protracted wage negotiations, and above-inflation salary increases were likely to constrain growth.

4.6.

The Commission recommended that Government should continue to stay consistent on its policy stance towards maintaining fiscal credibility and ensuring fiscal sustainability in order to minimise economic risks.
It said that the medium-term spending should be reprioritised towards social and economically inclusive growth-supporting expenditure in order to mitigate the exacerbation of inequalities and socio-economic vulnerabilities in the long run.

4.7.

It further submitted that there must be transparent processes on providing fiscal support to SOEs, through publicly available reports and conditions, and reforming the evaluation criteria for granting government guarantees to SOEs.
It said that this includes establishing a governance framework with public reporting criteria that clearly defines detailed and precise profitability and other non-financial objectives for transparency.

4.8.

It said that the debt financing strategy should be aligned to economic growth initiatives in order to slow down the debt service costs and ensure that interest expenditure does not crowd-out critical spending in vital functional areas such as health and education.
In addition, government should improve expenditure management by preventing fiscal leakages and fruitless spending, the FFC submitted.

It emphasised reforms that will address vulnerabilities to corruption.

4.9.
4.9.

The FFC said that careful attention should be given to the budget and debt financing strategy to slow the annual growth rate of debt service costs and ensure that interest expenditure does not continue to consume fiscal space and crowd out spending on basic services and realising socio-economic rights.

4.10.
4.10.

The FFC submitted further that Government should address weak productivity in expenditure to create job-enhancing, inclusive growth through quality expenditure and 11 157 investment-enticing reforms.

In addition, long-term growth prospects will require addressing structural constraints.
To that end, Government must implement reforms that address vulnerabilities to corruption (such as procurement reform), ensure energy security by enticing private sector investment and fast-tracking the unbundling of Eskom.

Lastly, the overall increase in competitiveness of the economy through the reduction of regulatory barriers that support Small Micro and Medium enterprises (SMMEs) is urgently needed.

4.11.
4.11.

Lastly, it said that the implementation of tax reforms needs to be done in a manner that does not harm growth.

Parliamentary Budget Office 4.12.


Considering the assertions by the Minister of Finance and the 2022 MTBPS that the strategic goal of government is to reduce poverty, inequality and unemployment, the PBO questioned whether the approach taken in the 2022 MTBPS, and the solutions offered, supports the achievement of these goals given the experience with the chosen fiscal policy stance of consolidation over the past few years.

4.13.
4.13.

The PBO raised concerns on the approach suggested that may further constrain economic activity, erode the social fabric and escalate risks to societal and economic stability.

Also, progress on structural reforms has been slow and the advertised economic benefits of these reforms will most likely not be seen or felt over the medium- term, the PBO said.
It said that the growth rates forecast in the 2022 MTBPS meant that 12 158 real GDP per capita and real investment are expected to remain below the 2019 (pre- COVID-19) levels in 2025.

4.14.

The PBO submitted that fiscal consolidation has contributed to increased anger and heightened the risks of social and economic instability, as inadequate spending on social support and infrastructure has exacerbated poverty.
It said that fiscal consolidation ignores potentially huge costs to the economy and government, associated with serious risks, such as the COVID-19 pandemic.

Other serious risks include geopolitical conflict, domestic protests, climate change events, the possibility of new pandemics, global recession and the heightened likelihood of a financial and economic crisis.

4.15.
4.15.

According to the PBO, the poor performance of the South African economy, which predates the COVID-19 crisis, is due to the interrelated structural weaknesses of the economy and extreme levels of unemployment, poverty and inequality.

A path towards fiscal sustainability should consider these underlying dynamics of the economy, the PBO said.

It should ensure resources for measures to transform the structure of the economy and to alleviate suffering associated with the triple challenges faced.
The PBO said that South Africa’s extreme inequality is a great constraint on economic growth and development.

4.16.

The PBO said it believes that fiscal policy can be a more effective tool for redistribution in an unequal society and increased social security can provide automatic stabilisers to risks and shocks.

It added that fiscal policy can also support economic development and transformation, including diversified, value-adding industrialisation and productive services.

4.17.
4.17.

The PBO cautioned that the combination of higher interest rates and volatile cross- border capital flows poses serious risks to macroeconomic stability in developing countries.
It said that maintaining a primary fiscal surplus and reducing government 13 159 debt will not improve South Africa’s current account situation and prospects for growth because of the overwhelming impact and vulnerability to destabilizing, volatile short- term foreign capital flows and the high interest rate regime that this requires.

4.18.

The PBO raised further concerns that there is limited support for economic development in the 2022 MTBPS.
It submitted that efforts to fight inflation and reduce government debt levels will likely hurt small businesses and the poorest households much more than they help.

It also said that a lack of state capacity to deliver infrastructure projects as well as the insufficient progress in addressing structural constraints do not bode well for the fixed investment outlook.
It added that the sectoral reforms will not reduce the high levels of economic concentration across most sectors of the economy, including financial services.

4.19.

The PBO recommended that fiscal policy and the fiscal framework must consider current socio-economic conditions, including the extreme levels of structural unemployment, poverty and investment.
It said that fiscal sustainability should not narrowly focus on achieving budget surpluses and reducing government debt to GDP because decisions about the fiscal framework affect broader societal and political stability.
It said that the approach where the government narrowly focuses on fiscal ratios and points to structural reforms to increase economic growth that it hopes will trickle down to struggling households should be replaced by an approach where fiscal policy is seen as an important part of a policy toolbox to transform the economy.

4.20.

The PBO submitted that tax is an important tool that can be used for the redistribution of income and wealth.
It said that greater domestic resource mobilisation can be achieved through further progressive tax reforms, leveraging development finance, and non-traditional monetary policy tools, amongst others.

It submitted that tax proposals taxing excess profits of companies that have used the inflation upsurge to profit and make up for COVID-19 losses should be considered, and windfall taxes for sectors 14 160 benefiting from the commodity price boom.
It said that failure to reach a global consensus on international tax reform for digital tax leads to a situation where South Africa should unilaterally introduce domestic taxes on the digital economy.

There is a need for a systematic review of tax incentives and the removal of ineffective incentives and progressive measures to tax wealth.

4.21.

The PBO welcome the extension of the SRD grant and added that the MTBPS should have addressed the issue of basic income grant.

5.
5.

SUBMISSIONS BY STAKEHOLDERS COSATU 5.1.

COSATI said that it was deeply distressed that the MTBPS did not provide a clear plan or road map for South Africa to address its many massive challenges.
These range from a staggering 44% general and 60% youth unemployment rate, an economy in recession and struggling to recover from Covid-19, the state bleeding billions to corruption and wasteful expenditure, Eskom struggling to provide reliable and affordable energy, Transnet and PRASA ravaged by cable theft, and the July 2021 violence and the March 2022 floods.

5.2.
5.2.

COSATU submitted that there was little in the MTBPS that gave hope to workers and the nation that government has things under control and we can see the economy growing, jobs being created and the state rebuilt.

Workers looked forward to hearing decisive action from government and were left disappointed on many fronts.

5.3.
5.3.

COSATU said that Government needs to ramp up the fight against corruption, including by reversing the head count decline in the SAPS, filling key vacancies in the NPA, 15 161 empowering SARS to undertake lifestyle audits of politicians, senior state managers and high wealth individuals.

5.4.
5.4.

Most worryingly, COSATU, Government continues to pursue its focus on reducing the debt by allowing public servants’ wages to be eroded by inflation and allocating below inflation increases and thus cuts in real terms to key public services that workers and the economy depend upon.

It said that Government continues to outsource the bill for state capture and corruption to public servants.
The MTBPS provided no plans to reverse the rapid decline in the head count ratio for nurses, doctors, teachers and police officers.

5.5.

COSATU said that there was little that spoke to how Government is tackling corruption, ending wasteful expenditure or rebuilding key SOEs.

It said that the failure by the NPA to meet even 20% of its annual targets halfway through the financial year should set off alarm bells for everyone.

5.6.
5.6.

Halfway through the financial year, COSATU said, it is deplorable how far behind many key departments are in meeting their annual targets.

It said that the financial free fall of 90% of municipalities is well known, yet there was no sign of action by COGTA and SALGA in turning the state of local government around.

5.7.

Whilst the overall thrust of the MTBPS was depressing, COSATU welcomed its positive elements.
It said that these include the extension of the SRD grant until 2024, a commitment to relieve Eskom of up to 2/3 of its debt burden, additional funds to rebuild Transnet, relief for DENEL and ending of the E-Tolls saga.

COSATU also welcomed Government’s agreeing to these COSATU demands.

5.8.
5.8.

COSATU said that Government needs to table a bold and progressive budget in February that will provide relief for the poor, protect workers and public servants, tackle corruption and wasteful expenditure, clamp down on tax and customs evasion, support 16 162 Eskom as well as Transnet and Metro Rail and other key SOEs, rebuild local government and restore quality public services, stimulate the economy and reduce unemployment.
It said that the country cannot afford to continue to run an economy on a wing and a prayer and expect things to change.

Budget Justice Coalition (BJC) 5.9.

The BJC is comprised of 22 civil society organisations, working across a number of sectors, with a common goal of advancing the progressive realisation of socio-economic rights in South Africa.

5.10.

It said that Government continues to prioritise debt reduction over human rights and investments in state capacity.
It said that the increase to basic education and healthcare funding still failed to ensure that spending in these areas kept up with CPI inflation and the rising demand for services, throughout the MTEF.

5.11.

BJC said that grants and pensions continue to be eroded due to the Government failing to keep grant values up with inflation, now for two years in a row.
It said that globally, governments have stepped up to insulate their people from the effects of rising energy and food prices, yet the South African government was proposing cuts to grants and thereby condemning its people to greater hunger and energy poverty.

5.12.

BJC said that the 1.7% real cut in per capita non-interest expenditure in 2022/23 is already doing harm to public services that are essential for the protection and achievement of human rights and a just transition.
It said that the primary budget surplus of 0.7% of GDP that government aims to achieve in 2023/24 is a self-imposed austerity measure of the harshest kind that will inflict further damage onto public services already 17 163 buckling under the weight of state capture, a decade of austerity, and the Covid-19 pandemic.

5.13.
5.13.

BJC argued that by taking revenue out of our economy and channelling it to debt repayments, the primary budget surplus target will slow our recovery from the Covid- 19 pandemic even further, and will not enable households to “weather the storms that lie ahead”.

It said that there was no evidence to support that a primary budget surplus will lead to greater poverty reduction, a narrowing of inequalities, or a substantial increase in employment.

5.14.
5.14.

BJC asked the following questions: when will Parliament demand an end to more austerity?

Why is gender equality not at the core of South African fiscal and budgetary policies?

What political vision do these cuts represent other than one in which the state walks away from the hard-won socio-economic rights enshrined in our 1996 Constitution?
What developmental benefits, if any, have been gained by the attacks on public education and healthcare services, among others, endorsed by Parliament over the past decade?

5.15.

BJC recommended that National Treasury should include an equity chapter in all its policy documents that will specifically outline the fiscal implications of policies on gender, race, class, disability, alongside other relevant social categories.

It said that Parliament should not endorse the goal of a primary budget surplus.
BJC added that government should honour its human rights obligations by undertaking human rights impact assessments of its fiscal and budgetary decisions.

5.16.

BJC recommended that Government should abandon the primary budget surplus objective, and instead ensure that public services and households are protected from inflation and receiving allocations that at least keep up with inflation and user demand.
BJC submitted that Government should recognise the value that public sector workers 18 164 contribute to the economy and society by ensuring that wages keep up with inflation and that vacancies in public health and education, are filled.

5.17.
5.17.

BJC advocated for the implementation of progressive tax reforms targeting high net wealth and medium-high income earners to ensure fiscal sustainability, narrow inequality and raise additional long-term revenue for the universal basic income grant and other socio-economic priorities.
It further submitted that Government should commit to a gender budgeting process that encapsulates budget allocations, taxes and revenue and debt management and in which womxn, with diverse perspectives, and with lived experience of different contexts, are centred in the process of developing goals, and debating priorities.

5.18.
5.18.

Lastly, BJC recommended that Parliament should require that all budget decisions are informed by human rights obligations, and when budget cuts are proposed, undertake a participatory human rights impact assessment and publish the findings.

SAICA 5.19.

SAICA applauded that no further tax increases were proposed and that SARS will be allocated more funding over the medium-term.
It also welcomed other initiatives such as the move to a single remuneration framework, the approval of the “Framework for professionalizing public sector”, the funding framework and enforcement of minimum criteria for state guarantees and the strengthening of National Treasury’s early warning system to improve oversight and timely assistance for municipalities.

5.20.
5.20.

SAICA noted that despite all these initiatives (some of which it feared were being implemented too late), the credibility of the budget was in question.

It said that this was evidenced by revenue predictions that were growing despite weak (and declining) economic growth and worsening tax buoyancy ratios.
It pointed out that even the SARS 19 165 Commissioner stated that these estimates were steep and the MTBPS documentation also admitted that there is significant uncertainty associated with the projections which could lead to significant downward revisions and put the fiscal strategy under pressure.

5.21.
5.21.

In light of the above, SAICA submitted that the National Treasury should provide Parliament with evidence of their research proving that breaching the 25% tax-to-GDP level will not result in the fiscal policy becoming detrimental to the economy.

5.22.

SAICA observed that the lack of credibility of the fiscal framework was also reflected on the expenditure side, with the consistent breaches of the expenditure ceiling.
It said that the National Treasury has noted that the expenditure ceilings were too weak and it was considering various approaches to safeguard fiscal sustainability and limit excessive deficits, for example, debt ceiling, expenditure or revenue rule.

5.23.

In this regard, SAICA submitted that the National Treasury should be requested to provide regular feedback on its research on the most appropriate model/policy to safeguard the country’s fiscal stability.

5.24.
5.24.

SAICA pointed out that the unbudgeted items remain a significant risk to the credibility of the budget.
It said that it noted these in its 2022 Budget Review and Appropriations Bill submissions and these included: SOEs contingent liabilities that are fast becoming government debt, financial support for municipalities that are in a precarious financial health situation, costs to fix the dilapidated water and sanitation infrastructure, costs needed to appoint 12 000 new police recruits as promised by the President in the 2022 SONA - as inflation will erode the increases given to the Police Department in the 2022 Budget, IRBA’s financing needs and the potential underfunding of the long-term funding requirements of the GEPF.
5.25.

SAICA stated that the latest known unbudgeted expenses are the Eskom debt that will be taken over by the government (+/-R200 billion) as well as the wage increases for 20 166 2023/24.

It said that the other one is increase in wages of 3.1% for the medium-term, which is insufficient considering the unions’ current demands of between 6% to 10%.

5.26.

SAICA submitted that the budget should be adjusted to cater for at least a realistic estimate of the above matters.
Furthermore, professionalising the public sector should be expedited so that the structural mix as well as individual performance management can start being addressed.

It submitted that regarding the SOEs, the National Treasury should be requested to prepare a risk-based schedule of all guarantees with a reasonable estimate of risk realization in the medium-term and Public Private Partnerships should be escalated.
It added that the R479 billion accumulated deficit of the Road Accident Fund needs urgent attention.

5.27.

SAICA stated that the MOST SERIOUS RISK to the budget is, however, “the inevitable grey listing” of South Africa by FATF.

SAICA said that this appeared to have not been factored in at all, yet it will have a profound effect on the budget and cash reserves in the National Revenue Fund that are already decreasing rapidly.
SAICA submitted that the budget should have at least prioritised immediate allocations to departments/entities tasked with enforcing the law, such as to the NPA for instance, by reallocating the R1.7bn from the “VIP unit” budget.

5.28.
5.28.

Lastly, SAICA submitted that Parliament should review its committee mandate concerning the separation between SCoF, SCoA and SCoPA to ensure that oversight obligations don’t fall in-between the cracks and that Parliament is effective as a single collective arm of government.

Institute for Economic Justice (IEJ) 5.29.

The IEJ recommended that the Committee calls on the Minister of Finance to put the needs of all South Africans at the centre of the budget and budget processes.
It said that 21 167 this entailed a radical shift in the fiscal framework, from focusing on short-term goals such as the primary budget surplus to targeting unemployment, poverty, and inequality.

It emphasised that the urgency of resolving this triple burden is more pronounced in the context of a rising cost of living crisis that disproportionately falls on the majority, low- income households, and the unemployed.

5.30.
5.30.

The IEJ’s detailed analysis and submission to the Committee provided an analysis and evidence of how the current fiscal framework is unsustainable and at odds with the State’s obligation to progressively realise human rights.

It said that the current path of austerity has had an impact on the delivery of public services, leading to a regression in the protection of human rights, and disinvestment in public services.

5.31.
5.31.

The submissions further discussed the proposals for progressive taxation to raise the maximum available resources to invest in public services, comprehensive social protection, and public employment.

The IEJ said that mobilising resources for the realisation of human rights involves raising, allocating, and spending money in a manner that prioritises people’s rights.

5.32.

It reminded the Committee that the State has a constitutional obligation to progressively realise socio-economic rights.
As such, it has a duty to prioritise those who are most vulnerable, excluded, or discriminated against.

It is this approach that should guide priorities in the Budget.

Public Economy Project (PEP) 5.33.

PEP noted the short-term improvement in the fiscal position on the back of a nominal boom but highlighted that the real economic stagnation meant continued fiscal 22 168 weaknesses ahead.
It observed that Government slowed down its spending on growth in the wake of the pandemic and a much larger slowdown is planned for 2023.

5.34.

PEP decried that there was no “end of consolidation” in the fiscal framework, as it continues for the full three years of the MTEF as indicated by falling real per capita spending on core services.
It noted that employment levels in health, education and criminal justice will be forced down further unless real reductions in government pay are executed for another three years (or if spending is increased substantially).

5.35.

PEP said that the aggressive fiscal consolidation path appears to stabilize debt, but the spending trajectory is implausible, and the “spending ceiling” is unreliable as forward guidance.
PEP further pointed out that the revenue outlook was too optimistic and major risks were not included in the baseline.

5.36.

PEP submitted that with slightly different assumptions, fiscal targets set out in MTBPS are not achievable.

Lastly, it said that the lack of reliability of key budget metrics points to a deterioration in the quality of the MTBPS and raises questions about the country’s fiscal institutions.

Healthy Living Alliance (HEALA) 5.37.


HEALA stated that it believes in food justice and for all South Africans to have equitable access to affordable and nutritious food.

It said that this can be achieved through strengthening food policies that protect the public against unhealthy food environments and those that promote good health.
The economic, household and individual costs of not realising the Right to Food are placing our people at a disadvantage to developing into a flourishing nation, Heala said.

It said that calling the health promotion levy (HPL) the “sugar tax” does not give it justice.

HEALA said that 23 169 since its inception, the HPL has already shown positive results in changing consumer behaviours, but it has the potential to do much more.

5.38.
5.38.

HEALA submitted that the HPL is constantly under threat through non-transparent dealings with the private sector that dilute, delegitimize and delay the increase of the HPL to 20% - an increase that would reap many rewards.

It called on the government to wholeheartedly commit to strengthening the HPL, an existing and successful health policy, that benefits both the public’s health and the fiscus.
HEALA noted that during the 2022 Budget Speech, the Minister of Finance announced a planned increase to the HPL of 4.5% - raising the levy from 2.21 cents to 2.31 cents per gram of sugar for sugar- sweetened beverages (SSBs) above the threshold of 4 grams of sugar per 100 ml to take effect on 1 April 2022.

It said it welcomed this announcement as it would be the first increase since the HPL was enacted in 2018.

5.39.
5.39.

HEALA expressed disappointment that the National Treasury had now postponed the increase to April 2023 to allow for broader consultation on the expansion of the HPL to include fruit juices and lower the 4g threshold of the levy.

It said that the National Treasury had not given any explanations on why this postponement was necessary for consultations nor how the decision was made.
HEALA said that it had submitted a Promotion of Access to Information Act (PAIA) application to National Treasury to demand records of evidence that informed the decision to delay the increase of the HPL and to share meeting minutes between Treasury, the Sugar Cane Industry and the Consumer Goods Council concerning the HPL.
It said that a response was promised by the National Treasury to be sent no later than 10 October 2022, however, that response was had not been given at the time of the MTBPS and the hearings of the fiscal 24 170 framework in Parliament.

HEALA decried lack of transparency and accountability as worrying.

5.40.
5.40.

HEALA submitted that the HPL needs to be increased to the recommended 20% rate and public consultations to decrease the 4g threshold and expansion of the HPL to include fruit juices are needed with urgency.

HEALA also submitted that the National Treasury provides transparent information about any correspondence with the food and beverage industry in relation to the HPL 6.

RESPONSES BY NATIONAL TREASURY TO INPUTS AND SUBMISSIONS 6.1.
In its response to inputs from Constitutional and statutory institutions and stakeholders, the National Treasury sought clarify government’s fiscal positions and strategy, the proposed fiscal policy stance, South Africa’s structural growth problem, revenue and tax proposals, expenditure, the financing and debt management strategy, strategy in relation to SOEs, public participation strategy and other matters raised during the public hearings and Committee deliberations.

6.2.
6.2.

The National Treasury stated that the MTBPS does not announce new policy proposals such as tax measures or detailed expenditure allocations, as this is only done in the February budget.

It said that the fiscal strategy is not exclusively focused on debt reduction, but on strengthening public finances for sustainable growth and service delivery.
It said that in order to ensure sustainable public finances and to achieve long- term intergenerational equity, it is crucial to carefully balance revenue, expenditure and borrowing.

It explained that financing and debt management also play an important role.

6.3.

The National Treasury explained that government plans to implement its strategy as presented in the 2022 MTBPS.
On average, over the 2022 MTEF, the National Treasury 25 171 explained that government will use 49 per cent of windfall revenue to improve the primary balance and 51 per cent to increase non-interest expenditure.

It explained further that government will not rely on transitory revenue gains to fund permanent spending increases but will instead use these funds to reduce some of the risks and contingent liabilities.
It said that as the gross debt burden declines, government will repair the broader public-sector balance sheet by reducing risks posed by public entities.

6.4.

The National Treasury vehemently disputed assertions that the 2022 MTBPS was austere.

It said that no further budget reductions had been announced in the 2022 MTBPS.

Instead, additional spending in critical spending areas were made using a portion of revenue improvements.
It added that, excluding the once-off payments in in year (2022/23) adjustments, the main budget non-interest expenditure will grow on average in line with CPI inflation over the 2023 MTEF.

6.5.

The National Treasury further clarified that despite projections to reach a primary surplus by 2023/24, government debt was still very high.

Each year, a budget deficit adds to debt, increasing debt-service costs, limiting government’s capacity to spend more – and this cannot continue indefinitely.

6.6.
6.6.

The National Treasury explained that over the MTEF, an allocation of R3.56 trillion, or 59.2 per cent of total non‐interest spending is dedicated to the social wage.

This aims to alleviate poverty, reduce unemployment and accelerate growth.

It said that despite measures aimed at controlling expenditure growth, the funding for the social wage has been protected to ensure that necessary goods and services are provided to those who are in need.

6.7.
6.7.

The National Treasury further explained that the fiscal strategy in the 2022 MTBPS is directed at reducing fiscal risks in the short-term, narrow the budget deficit and stabilise debt, while proposing measures to enhance economic growth and restore funding for 26 172 infrastructure and service delivery programmes.
It explained further that the National Treasury was implementing this strategy for several reasons including that since 2007/08, South Africa’s public debt had risen sevenfold, from R577 billion to over R4 trillion in 2021/22, thus raising payments on interest which were crowding out spending on essential services.
It added that a narrowing budget deficit reduces the need to issue new debt and allows government to better manage the spike in debt redemptions, reduce growth in debt-service costs and gradually restore growth in the baselines of key service delivery and infrastructure programmes.

6.8.
6.8.

Another reason advanced for this stance was that the country’s stock of debt remained high, and prudent public financial management remained essential to reduce the proportion of revenue dedicated to servicing debt over time.

The National Treasury explained further that stable public finances will underpin economic growth, maintain government’s commitment to support vulnerable households and help reduce overall risks to the fiscal outlook.
It said that this approach avoids the pitfalls of risky fiscal action that has led to currency depreciation and economic instability in several other countries.

6.9.

On medium-term spending plans, the National Treasury explained that the 2023/24 financial year is the final year of the fiscal consolidation announced in the 2020 MTBPS.

It said that the 2022 MTBPS does not include any new budget reductions.
It said that from 2024/25, the main budget non-interest expenditure is expected to grow above CPI inflation.

It said that the main budget non-interest expenditure will increase by a net R52.4 billion in 2023/24 and R58.5 billion in 2024/25 compared with the 2022 Budget.
This includes the following proposed additions over the next two years: R66.9 billion for health, education and provision of free basic services by local government, and a one-year extension of the COVID-19 social relief of distress grant; R8.9 billion 27 173 for safety and security; R11.3 billion for infrastructure investment, including rehabilitating damaged municipal infrastructure and refurbishing provincial roads.

6.10.
6.10.

On the critique of the revenue forecast that was too optimistic, the National Treasury stated that strong revenue collections were again due to corporate income tax, but this time for improvements in finance and manufacturing sector, not just mining.

It explained that the fuel levy relief and increased VAT refunds in 2022/23 masked higher in-year revenue across most major tax categories.

It explained that the 2022 MTBPS revenue estimates align with the baseline macroeconomic projections.
It explained further that higher inflation leads to higher tax bases and nominal GDP, improving expected revenue.

It said that the medium-term tax elasticity assumptions from the 2022 Budget are maintained for the 2022 MTBPS estimates.

It explained that the majority of assumed revenue gains from high commodity prices were excluded from the corporate income tax forecasts over the next two years (as the assumed buoyancy of corporate income tax is 0 for 2023/24).
The National Treasury argued that the rebuilding of SARS was evident in improved revenue collection and compliance trends.

It said that additional revenue gains from SARS efficiency improvements represented an upside risk to the revenue estimates.

The National Treasury however noted that there are downside risks if commodity prices fall below forecasted values or if a global recession materialises.

6.11.
6.11.

The National Treasury assured that it will consider the tax policy issues in the 2023 Budget in February as the MTBPS did not include any announcements on tax policy.

It stated that it had responded to HEALA’s PAIA request on minutes of meetings with the sugar cane industry.

The National Treasury stated that it had had no such record of meetings taking place.

6.12.
6.12.

On expenditure issues, the National Treasury conceded that effectiveness of the expenditure ceiling, which was introduced in the 2013 Budget, has been limited as fiscal 28 174 imbalances continued to grow since then.

It stated that while fiscal consolidation had achieved some success, debt continued to rise as a share of GDP due to new spending pressures and the declining economic growth.

The National Treasury explained that it was considering additional options to protect fiscal sustainability.
It said that it had tested the appropriateness of fiscal rules such as a debt ceiling, expenditure or revenue rule, which may assist in limiting excessive deficits.

6.13.
The National Treasury explained that spending risks were not allocated in the 2022 MBPS baseline as the: Eskom debt take-over still needed to be quantified and will only be included in the baseline when it materializes; the public sector wage bill is still under negotiation; the unallocated reserve cushions the fiscal framework from fiscal risks that may materialise over the medium term; permanent extension of the SRD grant, or any replacement thereof, needs to be matched by a corresponding permanent increase in revenue, decrease in spending or combination of the two; and the findings of some spending reviews are being implemented in the peace and security and general public services functions.
The National Treasury stated that in most cases, expenditure review findings remain under discussion or will take longer to implement because they require legislative amendments and political conversations.

6.14.

The National Treasury explained that it is regrettable that some policy decisions with financial implications have not been finalized.

It said that the inclusion of reserves is meant to protect the integrity of the overall fiscal framework.
It said that this strategy has already improved clarity and decision-making during the 2023 budget process.

6.15.

On the uncertainty of the public sector wage bill, the National Treasury explained that most of the unions rejected the 3 per cent facilitated offer by the state, which meant the funding allocations for 2022/23 cost-of-living adjustment (COLA) could not be included in the 2022 Adjusted Estimates of National Expenditure (AENE).
It said that no resolution was reached in the conciliation process.

It said that the unions now have 29 175 a certificate to embark on an industrial action.

Nevertheless, the proposed fiscal framework assumes a broad-based increase in 2022/23 and its carry-through effects over the MTEF.

This helps to safeguard the credibility of the fiscal balances.

6.16.

The National Treasury explained that over the past 15 years, the consolidated wage bill grew significantly.
In the context of slow economic growth, the growing wage bill began crowding out spending in other critical areas, including service delivery.

It said that between the 2020 and 2021 Budgets, government reduced the medium-term compensation of employees’ baselines by more than R300 billion in order to stabilise the public finances.
It said that in order to avoid pre-empting the wage negotiation process, no provisions have been made for wage increases in 2023/24 although increases will need to remain within the available fiscal resources so as not to compromise other spending priorities.

6.17.

The National Treasury pointed out that it was allocating funds to reduce fiscal and economic risks posed by Denel, SANRAL and Transnet, and plans to take over a portion of Eskom’s debt.
It said that these actions will help secure the gains of fiscal consolidation by improving economic growth and associated revenue collection and reducing contingent liabilities.

6.18.

On the possible grey-listing of South Africa by FATF, the National Treasury explained that over the 2023 MTEF, additional resources to carry out work will be allocated to particularly law enforcement agencies and the Financial Intelligence Centre.

6.19.
6.19.

On climate change issues, the National Treasury stated that in line with South Africa’s global commitments, fiscal policy will continue playing its part to shift economic incentives towards cleaner forms of energy.

It said that a paper on the design options 30 176 for tax free allowances under the carbon tax will be published in 2023 for public comments and consultation 6.20.
On public participation, the National Treasury pointed out that South Africa remains among the top 2 countries with the most transparent budget processes in the world.

I explained that the global transparency average is 45 out of 100, while South Africa scores the second best with 86 out of 100, a score which reflects South Africa’s commitment to transparency.

7.

COMMITTEES’ OBSERVATIONS AND RECOMMENDATIONS 7.1.


The Committee notes the concern from some stakeholders that the 2022 MTBPS continues with the austerity started in the 2022 Budget.
While the National Treasury vehemently rejects this view on the basis that there are no budget reductions over the medium term, and that there was additional spending allocated and government debt levels remain high, the Committee recommends that the National Treasury considers some of the arguments raised by these stakeholders.
The Committee understands the arguments by stakeholders on austerity to be informed by the fiscal consolidation path of government of the last few years as headlined by spending cuts or spending increases that are below inflation, with declining headcounts and no credible measures to deal with the rising unemployment, poverty and inequality.
The Committee recommends that the National Treasury should report to the Committee the extent to which the previously adopted countercyclical fiscal policy and fiscal consolidation have been effective in stabilising the fiscal framework.

The Committee welcomes that the 2023/24 financial year is the final year of the fiscal consolidation announced in the 2020 MTBPS.

We also welcome that the 2022 MTBPS does not include any new budget reductions.

7.2.
7.2.

While NT is adamant that the 2022 MTBPS, and the Budget in general, is pro-poor, more and more people are unemployed and are trapped in poverty and inequality.

The 31 177 MTBPS itself reported that 2.3 million people lost their jobs during the Covid-19 pandemic.
The 2022 Second Quarterly Labour Force Survey from Statistics South Africa also shows that the number of unemployed persons increased by 684 000 to 15.6 million in that quarter, leading to a rate of unemployment being measured at 33.9 per cent (or over 44 per cent on the expanded unemployment definition) or 8 million persons (or over 12 million on the expanded definition).
The Committee remains extremely concerned about this, especially in the light of an economic growth rate that is too low to address poverty, inequality and unemployment challenges.

The Committee recommends that the Budget should consider far more the impact of the high cost of living on the economy, particularly on the poor households.

7.3.

The Committee notes the submissions made by the stakeholders regarding increasing the social grants and is sympathetic to them.
The Committee also welcomes the extension of the SRD grant by another year.

Given the consequences of Covid-19, the July 2021 social unrest, the KZN floods and the increased poverty, inequality and job losses, the unemployed and poor need to be cushioned more.

The Committee reiterates its previous position that the National Treasury and government should seriously consider a Basic Income Grant (BIG).

The Committee’s views on this are not unrealistic or populist.
The Committee is acutely aware of the severe constraints on the budget and the reduced fiscal space, and the huge cost that the State will have to bear.

But given the conditions in the country at present and the limited growth rates and job-creation, not to provide a BIG could lead to social consequences that will cost the State and society far more.

The BIG can be introduced in an incremental, measured way that takes into account the limited fiscal space.

The necessary trade-offs will have to be made.


The tax proposals made by various stakeholders in the hearings on the funding of the BIG also 32 178 need to be considered.

The Committee will raise this with the Appropriations Committee to consider taking further.

7.4.

The Committee notes that the social wage - which is the combined spending on health, education, housing, social protection, employment programmes and local amenities- is protected in the revised and proposed fiscal framework.
The Committee welcomes that over the MTEF, an allocation of R3.56 trillion, or 59.2 per cent of the consolidated non‐ interest spending is dedicated to the social wage with the aim of alleviating poverty and reducing unemployment and inequality.

7.5.

The Committee welcomes the slight improvement to the country’s fiscal framework.
Despite the challenging economic environment internationally and domestically, gross government debt is now expected to stabilise at 71.4 per cent of GDP in the current year – two years earlier and at a lower level than was projected in the 2022 Budget.

7.6.
7.6.

The Committee further welcomes that gross tax revenues have been revised up by R85.5 billion in 2022/23, which is attributed to better-than-expected revenue collection in the final quarter of 2021/22, the upward revisions to near-term tax base growth projections and strong corporate income tax collections.

The Committee however notes that these revisions may be based on revenue forecasts that are rather optimistic, as argued by some stakeholders in the hearings.
The Committee notes the explanations from the National Treasury that the strong revenue collections were due to CIT collection from the finance and manufacturing sectors, rather than mining alone, as was the case in the previous years.

The Committee also notes that most assumed revenue gains from high commodity prices were excluded from the CIT forecasts over the next two years (as the assumed buoyancy of CIT is 0 for 2023/24).

7.7.
7.7.

The Committee notes further that the main budget revenue is expected to increase to 25.5 per cent of GDP in 2022/23 (R1 694 trillion) and average 24.9 per cent over the 33 179 MTEF.

Sixty five per cent of this projected additional revenue will be used to improve the primary balance, followed by 45 per cent in 2023/23 and 37 per cent in 2024/25, leading to a primary budget surplus, after a long period of time.

The Committee however notes that despite this, South Africa still has high levels of debt.
7.8.

While the National Treasury expects gross loan debt to stabilise at 71.4 per cent of GDP in 2022/23, which is two years earlier and at a lower level than projected in the 2022 Budget Review, the Committee remains concerned about the high levels of the debt.
The Committee notes that South Africa’s public debt increased sevenfold from R577 billion in 2007/08 to over R4 trillion in 2021/22, with increasing debt service costs to match, which are projected to increase, as a share of the main budget expenditure, from 15.2 per cent in 2022/23 to 16.8 per cent in 2025/26.
The Committee reiterates its recommendation that the National Treasury reports quarterly to it on the effectiveness of its debt management strategies that would ensure that the level of debt stabilises over the medium-term as expected and that extra-budgetary costs and contingent liabilities do not increase the debt levels further.

7.9.
7.9.

The Committee notes, with great concern, the significant risks to the fiscal framework and the fact that the National Treasury confirmed that the risks previously identified in the 2022 Budget have already materialised.

The continued bailout of SOEs undermines government’s fiscal stabilisation efforts.

The Committee recommends that the bailing out of SOEs, which is one of the biggest risks to the fiscus, should be subject to stringent conditions and accountability measures.
In this regard, the Committee notes the proposed conditional allocations to public entities such as Denel, SANRAL and Transnet in order to reduce contingent liabilities and enable these entities to continue 34 180 supporting economic growth.

The Committee recommends a similar approach as far as possible be taken on all SOE bail-outs.

7.10.

The Committee also notes the Eskom debt relief programme which will result in government taking over a portion of Eskom’s R400 billion debt.
It is envisaged that this debt takeover will enable Eskom to implement planned capital investments and critical maintenance.

The Committee will await the finalisation of the debt relief programme and more details in the 2023 Budget in February.

The Committee however strongly believes that the challenges at Eskom are not only financial, but also about management, leadership, governance and accountability.

7.11.
7.11.

The Committee further recommends that the National Treasury should consider SAICA and FFC recommendations on SOEs, which include a focus on operational deficiencies and proper management of procurement, contracts and payments, a risk-based approach to government guarantees and that a differentiation be made between repair and maintenance spending versus funding for new infrastructure.

7.12.
7.12.

The Committee notes the progress in the implementation of economic reforms that are expected to support investment and job creation under Operation Vulindlela.

We note that on the energy space, the National Energy Crisis Committee will focus on improving the performance of existing power stations and adding new generation capacity to the grid, which is estimated at about 14 gigawatts over the next two years.
We also note the corporatisation of Transnet National Ports Authority and the gazetting of the National Rail Policy in May 2022, with a focus on raising competitiveness, lower logistics costs and encouraging investments.

We note further that the broadband high value spectrum has been auctioned and draft by-laws for redeployment of telecommunications infrastructure have been published for public comments.
The Committee continues to 35 181 urge for speed to the finalisation and implementation of these and other similar reforms in order to enhance growth.

7.13.

The Committee notes that the 2022 MTBPS does not adequately focus on the Economic Reconstruction and Recovery Plan (ERRP), particularly on progress.
The Committee recommends that a forum should be created consisting of the PBO, FFC, NT and other experts to discuss the economic growth trajectory and strategy that would put South Africa on a sustainable upward growth trajectory, as the current fortunes derived from the commodity price boom are temporary and should not be overly relied upon, as NT itself concedes.

7.14.
7.14.

Since November 2021, the South African Reserve Bank has hiked the repurchase (repo) rate by 275 basis points with the intention of maintaining price stability amid raging inflation.

While inflation targeting falls within the ambit of the South African Reserve Bank (SARB), the Committee is concerned about the impact of the continued tightening of monetary policy and the impact of this on the cost of living, particularly for the poor and unemployed.
The Committee however understands that there are global pressures as other central banks are tightening their monetary policy in response to inflation in their jurisdictions.
The Committee believes that there is however a need for far more effective coordination between the fiscal and monetary policies and recommends that the National Treasury considers the FFC’s view that “if fiscal policy is credible and sustainable, that would remove pressure from the monetary policy or on the SARB to hike interest rates”.
The Committee will also engage with SARB in order to understand if there are no other favourable policy alternatives that could be implemented, within the constitutional and legislative mandate of SARB, which would not involve the aggressive hiking of the repo rate.

7.15.

In the 2022 Budget Speech in February, the Minister of Finance stated that he had agreed with the Minister of Minerals and Energy to review all aspects of the fuel price.
The 36 182 Committee further notes and welcomes the fuel levy relief announced by the two Ministers in March and May 2022, with the aim of alleviating pressure of the rising fuel costs on households.

The Committee requires that the Minister of Finance reports back to it on progress made in reviewing all aspects of the fuel price regime.

7.16.
7.16.

The Committee notes that the 2022 MTBPS does not appear to have explicitly budgeted for fighting corruption and Gender Based Violence (GBV) while the levels of crime in the country are increasing.

The Committee also notes concerns from stakeholders in this regard and urges the National Treasury to explicitly consider these issues in the budget and the budget process.

7.17.
The Committee reiterates its concerns about NT’s very late introduction of the (anti- money laundering and counter-terrorism financing) bills to Parliament and notes that despite the potential greylisting of South Africa by FATF and the dire impact on the economy that this outcome could have, particularly on foreign direct investment, the exchange rate, access to corresponding banking and cross-border trade, the 2022 MTBPS neither mentions this as a risk to the fiscus in its risk statement nor analyse its potential impact over the medium-term.
The Committee urges NT to consider the impact that greylisting may have on the 2022 proposed fiscal framework.

7.18.

The Committee is concerned that there appears to be lack of understanding of the future of the Gauteng e-tolls.

While the public seems to believe that the e-tolls have been scrapped, clarification was provided that a new funding model was being proposed to fund the e-tolls.

The Committee requires the Minister of Finance to provide a written response on this after adoption of this report.
7.19.

The Committee recommends, as it has in its previous reports, that the Public Procurement Bill be tabled in Parliament for processing.

The Committee believes that delays in tabling and processing this Bill compromises transformation and localisation 37 183 (procurement of locally produced goods.)

In compliance with section 217 of the Constitution, the Committee believes that black economic empowerment, youth, women, and people living with disabilities should be given preference when procuring.
7.20.

Participants raised several issues with regards to the risk of unresolved wage bill on the fiscal framework.

The Committee notes that while the wage bill has an impact on the fiscal framework, this matter will be referred to the Appropriations Committees for further consideration 7.21.

The Committee thanks all those who participated in its processes.

Having considered the 2022 Revised and Proposed Fiscal Framework, the Select Committee on Finance adopts it.
The Democratic Alliance, Economic Freedom Fighters and the Freedom Front Plus reserve their positions.

38 184