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Second Special Appropriations Bill, 15 September 2021 Outline • Introduction • Background • Fiscal Policy Framework and Existential Risks • National revenue, expenditure and budget balance • Preliminary outcome for 2020/21 of a selection of votes (below 97%) • Expenditure as at end June 2021and additional funding proposed for relevant National departments • Detail per vote • Further risks for medium-term budget consideration • Conclusion 2 Introduction • The Second Special Appropriations Bill aims to address the impact of the recent unrest and the ongoing Covid-19 pandemic • It provides for additional urgent funding allocations in the 2021/22 financial year, to the National Treasury, Social Development, Defence, Police, and Trade, Industry and Competition • It also includes allocations already authorised in terms of section 16 of the PFMA: • For Social Relief of Distress: R10.013 billion • For Trade, Industry and Competition: R1.3 billion • The Parliamentary Budget Office prepared this presentation focusing on providing background on the government fiscal policy framework and its risks additional information on the Second Special Appropriations Bill to assist Members with the approval, amendment or rejection of the Second Special Appropriations Bill • It includes a summary of: • National revenue, expenditure and budget balances to illustrate the effect on the budget balance • Preliminary outcomes of expenditure in 2020/21, which should be considered in budget adjustments, whether urgent or during the normal budget cycle • Expenditure as at the end June 2021and additional funding proposed for relevant National departments, to assist Members to determine the urgency of the approval of some of the proposed additional appropriations in 2021/22 3 • Per vote budget structures, to illustrate the technical changes to the budget Background • The first special appropriation bill (2020) was due to unavoidable Covid-19 pandemic related health, social and economic effects • In the second special appropriation bill 2021, the
 questions that the MPs should consider are • Whether, this special appropriation bill may have been avoidable if government had reassessed fiscal consolidation stance; and • Whether reassessment would have allowed government to take into account warnings about the fragile social fabric and the impact of the 3rd wave of Covid-19 infections • Reassessment rather than extension of fiscal consolidation would have allowed government to provide continued relief to poor households who were suffering before the pandemic and faced even greater hardship during 2020 and into 2021 • The question is whether, the devastating effects of inadequate social security on social infrastructure, private property, businesses, the economy and political stability caused by the events of July 2021 may have been avoided if social relief had been extended had fiscal consolidation not caused government to self-limit expenditure on social security and economic transformation • Lessons from other governments’ responses who said that they would “do all that it takes” to deal with the socio-economic impact of Covid-19 are still to be fully taken into account in South Africa Background • Several years of fiscal consolidation have had a cumulative negative impact on employment, investment and economic growth • This policy choice imposes self-limitations on government’s ability to develop longer-term, sustainable and just solutions to the key socio- economic problems in the country and achieving the socio- economic rights within the Constitution • It also self-limits government’s choice of approach to addressing the growth limiting structural problems in the economy • It has caused government to break social compacts that seemed to have supported social stability • It has caused government to break labour agreements (when it should have implemented a longer-term, negotiated plan) and thereby broken trust within public sector labour relations • Overall, the policy choice of fiscal consolidation seems
 to be increasing social and political instability Fiscal Policy Framework and Existential Risks • The PBO has cautioned repeatedly about the: • risks faced by South African society that have to be taken into account within the fiscal policy framework, budget allocations and government’s long term budget planning • fragility of the social fabric due to the worsening quality of life and suffering related to extremely high structural unemployment and extraordinary levels of inequality • Women, black women in particular and youth are some of those vulnerable and are worse affected in the society and the economy • The ongoing social and service delivery protests across the country leads to real destruction of community infrastructure assets • Even if the July 2021 events were initially orchestrated the outcomes show us the political and economic damage of extreme poverty and the negative costs of extraordinary levels inequality • To regain economic stability and rebuild the economy government has to also provide households with more stability and assurance in the form of a more comprehensive social security system • The cost of instability at a household level is not only related to macroeconomic stability but also political stability and democracy Fiscal Policy Framework and Existential risks • Fiscal consolidation forces government to focus only on solutions to deep structural problems in the economy that are micro-economic, supply-side problems that require limited government expenditure • This approach is based on a false dichotomy of the role of State and market in the economy; that the State should limit itself to creating the conditions for the private sector to take the lead in the economy particularly with regard to job creation • The approach disregards the multiple roles the State actually plays within the economy with regard to, providing services, employing a large share of the workforce, owning assets and enterprises, developing policies, regulating
 behavior of economic agents inside and outside of markets, international trade diplomacy and ultimately partnerships with private sector economic actors • The State also plays roles in the economy that the private sector does not play to address: • Market imperfections and externalities • Important gaps in key areas in infrastructure, social and welfare provisioning that private firms in the market cannot or will not provide • Inequality through measures to address inequality that support social and political stability • Relief and recovery in the face of pandemics, natural disasters and economic and financial crises, • Longer-term economic planning, particularly in a global economy where corporations are footloose and institutional investors and activist shareholders pressure them to focus on short-term returns rather than long-term nurturing of investment National revenue, expenditure and budget balance 8 National revenue, expenditure and budget balance • Preliminary outcomes for 2020/21 shows that: • • • Revenue collected is 2.94 per cent more than the revised estimates Expenditure is 0.9 per cent less than the revised estimates The main budget balance is 8.5 per cent less than the revised estimate • First quarter outcomes for 2021/22 shows that: Revenue collected is at 28.5 per cent of budget Expenditure is at 22.3 per cent of budget • • • 2021/22 Main budget balance • Original main budget balance (R482 580 025) • Main budget balance including the second special appropriations (R519 505 828), all other numbers kept the same 9 2020/21PreliminaryBudgetYear to datePercentage R thousanddifferenceestimateQ1 spent Revenue2.94%1 351 672 125 385 540 354 28.5%Expenditure -0.90%1 834 252 150 408 199 361 22.3%Appropriation by vote-1.38%980 583 908 238 210 594 24.3%Direct charges against the NRF-0.27%830 023 039 169 988 767 20.5%Debt-service costs269 741 139 32 516 846 12.1%Provincial equitable share523 686 351 130 921 587 25.0%General fuel levy sharing with metropolitan
 municipalities14 617 279 - 0.0%Payments in terms of Special Appropriation Act no.
11 of 20214 075 803 South African Airways45 000 1.1%Payments in terms of Second Special Appropriation Act no.
17 of 202132 850 000 Skill Levy and SETAs17 812 863 4 492 046 25.2%Other costs4 165 407 2 013 288 48.3%Provisional reduction to fund Land Bank allocation(5 000 000) - Provisional allocation not assisgned to votes12 645 203 - Infrastructure Fund not assigned to votes4 000 000 - Contingency reserve12 000 000 - Main budget balance-8.5%(482 580 025) (22 659 007) (519 505 828) 2021/22 Preliminary outcome for 2020/21 of a selection of votes (below 97%) • Preliminary outcomes for 2020/21 shows that: • Total vote expenditure amounts to 98.6 per cent • 14 Departments spent less than 97 per cent • 5 Departments have spent more than 100 per cent • The 5 Departments affected by the second special appropriations are shown in green, of which 3 did not spent the entire budget • These unspent funds could be surrendered to the NRF or rolled over for expenditure in 2021/22 during the adjusted budget period 10 Preliminary Percentageoutcome2020/211The Presidency93.20%5Home Affairs96.34%6International Relations and Cooperation96.53%8National Treasury 99.04%9Planning, Monitoring and Evaluation96.79%11Public Service and Administration91.87%12Public Service Commission95.29%15Traditional Affairs96.75%19Social Development100.24%21Civilian secretariat for the Police Services96.87%23Defence 98.94%28Police95.90%29Agriculture, Land Reform and Rural Development92.72%31Employment and Labour95.65%32Environment, Forestry and Fisheries83.79%34Mineral Resources and Energy94.94%39Trade, Industry and Competition97.48%41Water and Sanitation89.11% Expenditure as at end June 2021and additional funding proposed for relevant National departments • A provision of R3.9 billion additional funding has been included in the Bill to provide for a required capital injection should SASRIA exceed its limits.
It is unclear whether this funding is urgent i.t.o the purpose of this Bill • Defence has spent only 22.2 per cent of current payments in the first quarter • Police has spent only 23.7 per cent of current payments including COE in the first quarter and are in the process of restructuring • The availability of more information on actual expenditure might assist government with making better informed decisions about the requirements for Defence and Police • Amounts for Social Relief of Distress and Trade, Industry and Competition have already been authorised i.t.o section 16 of the PFMA 11 TotalCurrentTransfers andPayments forPayments for TotalR thousandpaymentssubsidiescapital financial 8National Treasury 41 055 707 16.4%23.4%19.1%4.2%17.9%Payment for financial assets3 900 000 19Social Development205 226 920 21.8%26.6%26.2%26.6%Transfers and subsidies26 700 000 23Defence 46 268 680 22.2%26.3%15.9%22.3%Current Payments700 000 28Police96 355 531 23.7%37.0%3.2%23.1%Current payments (COE)250 000 39Trade, Industry and Competition9 736 573 17.9%32.9%0.9%29.9%Transfers and subsidies1 300 000 Total appropriation by vote980 583 908 22.6%23.9%8.2%43.8%24.3% Detail per Vote Vote 8: National Treasury Vote 19: Social Development Vote 23: Defence Vote 28: Police Vote 39: Trade , Industry and Competition 12 Vote 8: National Treasury expenditure estimates by programme and economic classification 13 Programme Revised estimate Medium-term expenditure estimate Averagegrowthrate(%)Average:Expenditure/Total(%)R million2020/212021/222022/232023/242020/21 - 2023/241.
Administration539.1530.7535.8537.7-0.1%0.1%2.

Economic Policy, Tax, Financial Regulation and Research142.6153.8157.1157.53.4%0.0%3.

Public Finance and Budget Management2 794.03 929.93 844.43 801.310.8%0.4%4.

Asset and Liability Management3 030.85 117.91 118.31 118.8-28.3%0.3%Second Special Appropriation (SASRIA)3 900.05.

Financial Accounting and Supply Chain Management Systems808.71 082.91 122.21 075.810.0%0.1%6.

International Financial Relations6 526.37 286.22 306.22 347.9-28.9%0.5%7.
Civil and Military Pensions, Contributions to Funds and Other Benefits5 469.36 409.57 012.17 039.08.8%0.8%8.

Revenue Administration10 271.911 295.210 527.810 657.61.2%1.2%9.
Financial Intelligence and State Security4 942.95 249.55 381.05 411.63.1%0.6%Subtotal 34 525.741 055.732 004.832 147.3-2.4%4.1%Direct charge against the National Revenue Fund768 270.3808 174.4847 508.1879 451.54.6%95.9%Total 802 795.9849 230.1879 512.9911 598.84.3%100.0%Economic classificationCurrent payments234 957.8272 726.0311 075.0341 662.313.3%33.7%Transfers and subsidies558 601.7565 658.5566 759.7568 228.50.6%65.6%Payments for capital assets68.636.531.432.7-21.8%0.0%Payments for financial assets9 167.810 809.01 646.71 675.2-43.3%0.7%Second Special Appropriation3 900.0Total 802 795.9849 230.1879 512.9911 598.84.3%100.0% South African Special Risk Insurance Association • SASRIA: Is a public enterprise listed under schedule 3B of the Public Finance Management Act No 1 of 1999 • Purpose: Sasria is the only short-term insurer in South Africa that provides cover against special risks such as civil commotion, public disorder, strikes, riots and terrorism • SASRIA’s balance sheet showed total actual equity and liabilities as at 31 March 2021 of R10.48 billion and the forecast for end March 2022 is R11.57 billion.
• Early estimates by SASRIA is that claims emanating from the 21 July events could be between R20 billion and R25 billion • Claims will be settled with insurance companies over 2 financial years • For SASRIA to maintain a 100 per cent regulatory solvency rate, the entity estimated that they will require a capital injection of R15 billion • The Second Special Appropriation Bill, however, only provides a capital injection of R3.9 billion to SASRIA should it exceed its limits • To be able to accommodate future shocks, it is not clear whether SASRIA has undertaken a review to streamline operations and implement cost savings to increase operating profit and improve solvency 14 Vote 19: Social Development expenditure estimates by programme and economic classification 15 Programme Revised estimate Medium-term expenditure estimate Averagegrowth rate(%)Average:Expenditure/Total(%)R million2020/212021/222022/232023/242020/21 - 2023/241.
Administration426.6413.2418.8420.1-0.5%0.2%2.

Social Assistance220 606.6195 516.4205 294.6206 083.3-2.2%95.1%Second Special Appropriation26 200.03.

Social Security Policy and Administration7 585.87 576.07 613.07 684.40.4%3.5%Second Special Appropriation500.04.

Welfare Services Policy Development and Implementation Support1 842.31 367.31 508.01 561.1-5.4%0.7%5.
Social Policy and Integrated Service Delivery346.1353.9357.6358.91.2%0.2%Subtotal 230 807.3205 226.9215 192.1216 107.8-2.2%99.7%Direct charge against the National Revenue Fund2 825.8 – – –-100.0%0.3%Section 16 of the PFMA payment: Social Relief of Distress grant2 825.8 – – –-100.0%0.3%Total 233 633.1205 226.9215 192.1216 107.8-2.6%100.0%Economic classificationCurrent payments999.5916.9928.0931.8-2.3%0.4%Compensation of employees630.8510.7501.3503.5-7.2%0.2%Goods and services368.7406.2426.7428.35.1%0.2%Transfers and subsidies232 621.6204 297.5214 250.8215 162.1-2.6%99.6%Households223 453.5195 518.1205 296.3206 085.1-2.7%95.4%Second Special Appropriation26 700.0Payments for capital assets11.912.613.313.95.2%0.0%Total 233 633.1205 226.9215 192.1216 107.8-2.6%100.0% Social Grants: Preliminary performance National Treasury indicated that: • Approximately 13.2 million people will be eligible to receive the special SRD grant based on: • 7 360 011 caregivers (individual caregivers who receive a CSG will now be able to access this R350 grant as well as asylum seekers) • 5 853 661 previous grant recipients 16 2020/212020/212020/21 2021/22R million Revised estimate Preliminary outcome Percentage spent MTEFSocial protection expenditure256 813 229 354 of which:Social grants220 607 199 190 90.3%195 516 of which:Child support84 886 85 591 100.8%73 318 Old age183 107 81 026 97.5%86 488 Disability24 390 23 032 94.4%23 579 Foster care5 046 4 783 94.8%4 338 Care dependency3 569 3 446 96.6%3 658 Grant-in-aid1 632 1 312 80.4%1 600 Social relief of distress 17 977 19 768 110.0%2 536 Special Appropriation2 826 Second Special Appropriation26 700 Total256 813 229 354 Social grants as percentage of GDP4.5%3.7%Social grant beneficiary numbers by grant type (thousands)Caregivers7 360 SRD Covid-195 542 5 854 Grant-in-aid268Child support13 009 12 993 99.9%13 261 Old age13 741 3 723 99.5%3 860 Disability1 001 998 99.7%999 Foster care315 310 98.4%284 Care dependency151 151 99.7%156 Total18 218 18 441 101.2%18 559 Challenges identified with the SRD grant • In the 2020 Supplementary Budget Review is was identified that the rollout of Covid-19 social relief has been rapid in programmes that use existing infrastructure, such as the child support grant and tax relief programmes • The social relief of distress grant (to partially compensate for income lost as a result of restrictions on economic activity) has, however, taken longer to reach recipients • The South African Social Security Agency also told the Select Committee on Health and Social Services (1 September 2021) that: • The AG’s findings on the R350 special relief grant indicated the lack of data integration across government • Grants being paid to individuals who are not distressed: 67 770 grants were paid to individuals who did not qualify.
Although this number seems to be small (less than R25m) given the scale of relief being provided, it should be prevented • SASSA has approximately opened 241 criminal cases against government employees and 657 against company directors 17 Vote 23: Defence expenditure estimates by programme and economic classification 18 Programme Revised estimate Medium-term expenditure estimate Averagegrowthrate(%)Average:Expenditure/Total(%)R million2020/212021/222022/232023/242020/21 - 2023/241.
Administration5 445.15 514.15 623.45 640.21.2%11.4%2.

Force Employment4 620.73 596.53 586.43 606.2-7.9%7.9%Second Special Appropriation700.03.

Landward Defence16 617.214 523.414 532.214 833.6-3.7%31.1%4.

Air Defence7 536.25 969.25 914.75 902.5-7.8%13.0%5.

Maritime Defence4 958.74 278.14 471.04 511.5-3.1%9.4%6.

Military Health Support6 077.45 306.15 241.15 246.8-4.8%11.3%7.

Defence Intelligence1 147.9758.01 116.01 140.7-0.2%2.1%8.
General Support7 798.26 323.16 292.16 278.3-7.0%13.7%Total 54 201.346 268.746 777.047 159.8-4.5%100.0%Economic classificationCurrent payments46 146.842 965.242 588.142 912.7-2.4%89.8%Compensation of employees30 984.929 346.629 366.529 649.0-1.5%61.4%Second Special Appropriation354.4Goods and services15 162.013 618.613 221.613 263.7-4.4%28.4%Second Special Appropriation324.3Transfers and subsidies6 835.92 697.73 535.63 595.2-19.3%8.6%Payments for capital assets1 218.6605.7653.3651.9-18.8%1.6%Total 54 201.346 268.746 777.047 159.8-4.5%100.0% Vote 28: Police expenditure estimates by programme and economic classification 19 Programme Revised estimate Medium-term expenditure estimate Averagegrowth rate(%)Average:Expenditure/Total(%)R million2020/212021/222022/232023/242020/21 - 2023/241.
Administration19 007.119 936.119 948.319 987.61.7%20.2%2.

Visible Policing53 401.549 534.449 887.549 999.4-2.2%52.0%Second Special Appropriation250.03.

Detective Services19 688.519 541.619 664.219 731.90.1%20.2%4.

Crime Intelligence4 200.14 111.54 116.44 119.2-0.6%4.2%5.
Protection and Security Services3 263.73 232.03 241.23 245.4-0.2%3.3%Total 99 560.996 355.596 857.697 083.6-0.8%100.0%Economic classificationCurrent payments95 366.491 570.792 036.992 097.1-1.2%95.2%Compensation of employees76 147.075 300.575 299.775 297.1-0.4%77.5%Second Special Appropriation250.0Transfers and subsidies1 613.71 333.51 258.41 267.2-7.7%1.4%Payments for capital assets2 580.83 451.33 562.33 719.313.0%3.4%Total 99 560.996 355.596 857.697 083.6-0.8%100.0% Vote 39: Trade, Industry and Competition expenditure estimates by programme and economic classification 20 Programme Revised estimate Medium-term expenditure estimate Averagegrowthrate(%)Average:Expenditure/Total(%)R million2020/212021/222022/232023/242020/21 - 2023/241.
Administration829.9857.7873.3873.11.7%8.8%2.

Trade Policy, Negotiations and Cooperation213.2233.1235.5234.93.3%2.3%3.

Spatial Industrial Development and Economic Transformation141.1183.4186.4187.610.0%1.8%4.

Industrial Competitiveness and Growth1 650.51 759.01 799.71 775.82.5%17.9%5.

Consumer and Corporate Regulation304.2333.3338.6339.23.7%3.4%6.

Industrial Financing4 915.04 871.15 018.05 155.21.6%51.1%Second Special Appropriation1 300.07.
Export Development, Promotion and Outward Investments420.8443.9445.8442.21.7%4.5%8.

Inward Investment Attraction, Facilitation and Aftercare57.270.272.774.79.3%0.7%9.

Competition Policy and Economic Planning686.1906.3930.6939.511.0%8.9%10.
Economic Research and Coordination55.278.979.377.612.1%0.7%Total 9 273.39 736.69 979.810 099.72.9%100.0%Economic classificationCurrent payments1 759.51 875.41 883.31 853.61.8%18.9%Transfers and subsidies7 497.07 824.88 058.48 206.43.1%80.8%Public corporations and private enterprises6 273.86 345.26 545.76 678.32.1%66.1%Industrial Development CorporationSecond Special Appropriation1 300.0Payments for capital assets16.736.438.139.833.5%0.3%Total 9 273.39 736.69 979.810 099.72.9%100.0% Further risks for medium-term budget consideration • The social, economic and political risks associated with extraordinarily high inequality are not the only risks facing South Africa and the global community • The ongoing pandemic and the risk of new devastating pandemics in the future has to be included in budget planning so that enough resilience is built within society to promote economic stability in the face of pandemics • Climate change risks related to severe weather disasters and also prolonged droughts are not far off events but are occurring now and have to be planned and budgeted for immediately • The impact of the fourth industrial revolution and also contagion from economic and financial crises elsewhere in the global economy require not only measures such as strategic capital controls and increased domestic manufacturing of key products but also planning and budgeting to enhance skills and foster resilience to disruption from technological change • Consideration is required for increased government expenditure on comprehensive social security, national health insurance, improved education and training opportunities to promote solidarity across society and to ensure social stability that are pre-conditions for political and economic stability Further risks for medium-term budget consideration • Social and political instability can cause huge material damage in a very short period of time.
Spending on stability is an investment in preventing this damage.
• Fiscal policy responses to planning for risks and uncertainty could include: • The enhancement of automatic stabilisers as part of a comprehensive social security system • Additional automatic stabilisers that kick in when there is a crisis • A developing and growing South African economy requires the stability associated with building an inclusive economy, which means government’s fiscal policy framework and long-term planning has to start increasing expenditure to ensure the socio- economic rights in the Constitution • Decisions to increase taxes and when necessary to borrow more have to be seen as investments in the future and take into account that reconstruction and development cannot happen in an unstable environment Conclusion • In context of the special appropriations, the questions that the MPs should consider are • Whether, this special appropriation bill may have been avoidable if government had reassessed fiscal consolidation stance; and • Whether reassessment would have allowed government to take into account warnings about the fragile social fabric and the impact of the 3rd wave of Covid-19 infections seriously • The draft Second Special Appropriation Bill, 2021 proposes additional urgent funding allocations of R32.850 billion • This amount includes allocations already authorised in terms of section 16 of the PFMA: • For Social Relief of Distress: R10.013 billion • For Trade, Industry and Competition: R1.3 billion 23 Conclusion • To assist Members with their deliberations and considerations to approve, amend or reject the Second Special Appropriations Bill, the PBO provided additional information on: • Preliminary outcomes for 2020/21 that shows over-collection on revenue and underspending on appropriations • First quarter outcomes for 2021/22 shows higher than expected revenue collection and slower spending according to a 25 per cent notional benchmark • The proposed special appropriation is expected to increase the main budget balance if all other amounts are kept the same • Preliminary outcomes for 2020/21 and expenditure in the first quarter of 2021/22 shows underspending in specific votes that submitted a request for an urgent special appropriation • Social Development estimated that approximately 13.2 million people will be eligible to receive the special SRD Covid grant based on: • 5 853 661 previous grant recipients, which is in line with the 31 March 2021 SASSA report for 2020/21 • It is, however, not clear how the numbers (7 360 011) of caregivers were estimated.
Caregivers should be well defined.

It would also assist if actual numbers of recipients of a caregiver grant could be provided 24