Submission to Standing Committee on Appropriations

10 March 2023

SUBMISSION TO STANDING COMMITTEE ON APPROPRIATIONS

IN RESPONSE TO THE CALL TO MAKE WRITTEN SUBMISSIONS ON THE 2022 DoRB

22 March 2022

For further information, contact: Budget Justice Coalition Organiser | Bonus Ndlovu (budgetjustice@gmail.com) AIDC | Dominic Brown Corruption Watch | Kavisha Pillay Equal Education | Jane Bornman Institute for Economic Justice | Zimbali Mncube PARI | Tracy Ledger Rural Health Advocacy Project | Nzama Mbalathi SECTION27 | Daniel Mclaren

TABLE OF CONTENTS

1. INTRODUCTION 1
2. EDUCATION 1
3. HEALTH 3
4. SOCIAL DEVELOPMENT 6

5. LOCAL GOVERNMENT 10 RECOMMENDATIONS 11 ABOUT THE BUDGET JUSTICE COALITION 12

   1. INTRODUCTION

This submission on the 2022 Division of Revenue Bill is informed by a range of civil society organisations which are members of the budget Justice Coalition. We are appreciative of the opportunity afforded us by the Select Committee on Appropriations to present our inputs and thereby contribute to improving accountability.

Budget Justice Coalition continued to argue in submissions to this Committee as well as the Joint Committees on Finance and the Standing Committee on Appropriations that severe real terms funding cuts to non-interest expenditure, and specifically to the provincial equitable share and conditional grants, implemented in recent years and continued in the 2022 budget, are not justified. The government is too focused on a narrowly defined “debt sustainability” and has lost sight of its broader purpose and mandate. The state has failed to justify its decision to continue implementing budget cuts as the core mechanism to reduce public borrowing, even amidst significant revenue windfalls, since it has failed to demonstrate that the impact of this decision on people’s hard-won rights is being anticipated.

The impact of budget cuts disproportionately impacts the most marginalised and poor in our society and thereby increase inequality. We believe that MPs have a larger role to play in holding the executive to account for these decisions.

1. EDUCATION

On 7 February 2022 the Department of Basic Education instructed all learners currently enrolled in the basic education system to resume full time daily school attendance. While this decision marks a return to ‘normal schooling’, learners are returning to classrooms and schools whose systemic issues and inequalities, such as overcrowding, poor sanitation, and a lack of key resources, have been compounded by Covid-19 and the resulting cuts in funding to the sector. Covid-19, which necessitated remote and rotational learning, also has also led to severe learning losses (the DBE estimated learners lost as much as 75% of the 2020 school year) as learners struggled to keep up with their curriculum while experiencing increased poverty, hunger, stress and uncertainty, as well as a lack of access to teachers and home learning materials. Remote learning also meant that learners were unable to access important safety nets provided by schools, such as a safe environment for the day, psycho-social support and consistent school meals through the National School Nutrition Program.

Simply put, the 2022/2023 Budget does not reflect the current crisis the basic education sector. We are not seeing consistent growth in the sector that keeps up with inflation, changes in learner enrolment, and can address the myriad of challenges facing the sector in a sustainable manner.

● Overall: Consolidated expenditure in basic education for 2022 has increased by almost R20 billion from what was projected in last year’s Medium Term Budget Policy Statement. However, while the cuts in spending made during Covid-19 are not continued, we are still not seeing consistent and sustainable growth in basic education funding. The annual average funding increase of only 2.0% is less than half of what is required to keep up with price rises in the economy of 4.5% (CPI inflation).

● Infrastructure: As a result of Covid-19, National Treasury decided to cut school infrastructure funding in order to pay for Covid-19 relief measures. School infrastructure grants such as the Education Infrastructure Grant (EIG) and the School Infrastructure Backlog Grant (SIGB) saw a nett amount of R1.7 billion cut from their programs, with an additional R4.4 billion being reprioritised within infrastructure budgets for Covid-19 related measures. This decision had a deep impact of the provision of school infrastructure and further set back the DBE’s legal duty to under the Minimum Uniform Norms and Standards for Public School Infrastructure.

● We are pleased to see that these drastic cuts to school infrastructure spending are not continued in 2022/2023 and over the medium term. Allocations to the Education Infrastructure Grant (EIG) and School Infrastructure Backlogs Grant (SIBG) total around R47,4 billion of expenditure over the MTEF.

● NSNP: More than R26 billion has been allocated to the National School Nutrition Programme (NSNP) over the next three years. The NSNP budget is just keeping up with inflation and has not been increased to accommodate escalating food needs following the pandemic. However, it is encouraging that, in the budget today, National Treasury restated the DBE’s responsibility to give learners a daily meal, when learners are not at school because of COVID‐19

3. HEALTH

As we emerge from the emergency into the seemingly endemic phase of the COVID-19 pandemic, the enjoyment of the right is confronted by a deep inequality of access and healthcare system in need of renewal. Our health needs are vast, and our resources are sparse. This was true before COVID-19, and only more so now. Section 27 of the Constitution guarantees access to healthcare to everyone, including reproductive health services. Yet South Africans’ health needs outstrip the capacity of their healthcare systems. This poses the clear dilemma: how is the government to meet its Constitutional obligations with regards to health within the context of limited funds?

Without enough funding, we cannot do everything at once. Working within limited, existing funding then requires explicit budget prioritisation and framework for doing so. Realising the right to healthcare access must be understood through achieving Universal Health Coverage; defined by access, quality and affordability of healthcare for all. The theme for 2021’s UHC Day was “investing in health systems for all, to ensure that no one’s health is left behind” . This presents a simplified principle of prioritisation, as recommended by the World Health Organisation: that adequate healthcare services must be extended to the most vulnerable before anything else. By 2016/17, our UHC Service Coverage Index (which excludes financial risk protection) was calculated at 56.9, versus the global average of 66 and 2030 goal of attaining full coverage at 100. Effects of Covid will have certainly regressed even this level of progress.

For South Africa, this requires greater investment in primary healthcare services, and focuses primarily on rural areas which suffer historical and ongoing low service coverage. Rethinking how an adequate healthcare workforce, relevant health information systems and responsive budgeting mechanisms can be coordinated under good governance and values offers the possibility of building resilient health systems, reducing vulnerability to shocks and deepening South Africans’ health and wellbeing.

The challenge, then, is whether or how the 2022/23 budget and accompanying health sector strategies can create effective post-pandemic recovery in the face of these multiple pressures. What is painfully clear is that we cannot do so by simply reverting to pre-pandemic strategies as if the landscape has not changed.

For the 2022/23 budget, allocations to health stay relatively the same at 2020/21 levels, seeing a 1% increase for 2022/23, with a 0.2% growth over the MTEF period. In real terms, this means consolidated healthcare expenditure falls by 4.3% (before accounting for estimated increases in healthcare users), and a 15% decrease in per person expenditure over the MTEF. We can assume these declines are partially due to subsiding Covid-related costs. Nonetheless, this leaves little room to strengthen the responsiveness of the system to resolve health inequities unmasked during the pandemic. Below we consider key outcomes from the 2022 budget and their potential impacts or challenges faced.

● We are glad to see changes to the health component of the Equitable Share Formula. The new variables used to calculate the risk-adjusted index introduce weightings sensitive to the greater burdens carried by rural areas. These changes may not be enough to correct for the significance of inequities between rural and urban, however this is a step in the right direction. Whether this translates to greater health outcomes remains dependent on efficiency of spending. ● The lack of new funding for Primary Healthcare Services is worrying, given the dire need to address regression in screening, testing and treatment rates for infectious and non-communicable diseases caused by Covid. How this will be addressed by provincial departments of health remains to be seen. ● Without increased funding to hire additional healthcare workers, the freeze on filling critical and vacant posts is set to continue. This curtails potential efficiency of outcomes across all health programmes. Treasury further recognises the danger posed here by recommending a review of policies around staffing norms in regard to affordability. A welcome R3.3 billion over the MTEF is allocated to funding medical interns and community service doctors requiring placement. Changing this enables a potential lifeline to an under-capacitated workforce, depending on whether their placement is able to counteract the existing maldistribution versus substantial need. ● Reprioritisation of funding meant for health infrastructure is made to help increase allocations to human resources. Nonetheless, significant funds do remain available for much needed but delayed projects. However, various issues, such as frequency of overspending in procurement processes, point to need for greater oversight. More clarity as to the actual priority lists for projects within provinces is necessary to ensure investments are justified according to improving service delivery coverage. ● Changes see the HIV, TB malaria and community outreach grant reconfigured and renamed as the district health programmes grant; with R1 billion added to the Covid-19 response component to cover additional vaccine purchase. This sees mental health and oncology services components being moved to the direct national health insurance grant. The given justification for this being that “provinces have shown readiness to take on the delivery of these services”. However, as of yet, no indication is given as to how these essential services are to be carried out, risking whether the funds shifted along with them will be protected for their use and effectively utilised. Beyond this, the new grant apparently retains a similar function as previously. The reduction in funding over the medium term poses likely risks of failure to meet our 90/90/90 goals for HIV/Aids. Yet this may present an opportunity to review and refocus the retained components as well as strengthen their implementation. ● Allocations for the NHI direct grant increase significantly from R246 million in 2020/21 to R694 million in 2022/23, this largely due to incorporating services of mental health and oncology, and the funding for them, within it. Across 2020/21, main output was 233 health professionals contracted: this suggesting significantly high per unit costs. High compensation is expected with regards to goals of securing highly qualified services. On the other hand, focus should be given to whether there is room to improve plans to produce maximised impact for more healthcare users, and to ensure these are effectively integrated with existing services? ● The NHI indirect grant sees R2.2 billion for 2022/23. Certain challenges with underspending have existed; the Personal and Non-Personal Services components spending 81% and 85.5% respectively of 2020/21 allocations. The appointment of the deputy director-general for the NHI may help address these shortcomings. This funding, in particular, offers significant potential to improve the capacity, responsiveness and sustainability of publicly funded healthcare. If managed well, funding for further demonstration projects and strengthening of PHC could deliver significant improvements in district health services and efficacy of care networks, substantially advancing progress towards UHC. Additionally, health information systems development is vital. Recent research by the Medical Research Council revealed that about 40% of public hospitals were unable to produce accurate discharge records. Without this basic level of routine HIS, hospitals cannot support the resource management and reimbursements required for NHI. Moreover, the availability of timely, relevant and sound data is foundational to public health decision-making. Any attempts towards improving efficiency, evaluating priorities or progress, applying good governance and enhancing accountability, are critically dependent on the functionality of our health information systems. How we are strengthening this is vital to the project of building back better. Certain progress is made by the 2022 budget. Yet continued budget constraints placed by the budget maintain the core dilemma: health needs increasingly outstrip healthcare capacity. However, the numbers on their own mean nothing. As we have tried to explore above, the real impact made possible by this budget will be entirely determined by the choices guiding their subsequent allocations and implementation. Far greater efficiency of allocation and expenditure is required. Realising greater efficiencies while managing budget pressures is a complex and ongoing task. The present challenge is establishing how this responsibility can be better supported in the short-term to ensure a progressive realisation of rights to healthcare access.

Where overarching guidelines and oversight is located nationally, provinces are largely responsible for the country’s healthcare through expenditure based on their allocation decision-making. Research proves an inconsistent relationship between increased health programme expenditure and health outcomes across provinces; highlighting important disparities in efficiency to interrogate and need for approaches tailored to individual provinces. As recognised previously by Treasury, provincial departments’ allocations often become based on historical expenditure trends as opposed to clear links to plans, targets, or changes in programme performance. Existing provincial autonomy should be upheld, yet room to potentially review and enhance their annual performance plans should be explored beyond existing accountability mechanisms.

One step towards grasping this opportunity in the present, is in supporting a review of provincial departments’ planned usage of funds in 2022/23. This presents a valuable opportunity to: assist further inter-provincial learning of how health managers can protect healthcare for the majority in trying times and enhance the efficiency of annual performance plans.

We recommend that: ● A joint committee to be set up temporarily to review and interrogate provincial departments’ budgetary decisions for 2022/23, in accordance with most optimally aligning allocation of available resources to meeting existing needs. ● This committee should be jointly comprised of the: National Department of Health, Portfolio of Health, National Council of Provinces, and Civil Society Actors in the scope of health ● Appropriate representatives from provincial departments, such as the head of departments, should engage with this committee to present on and explain how their allocations, given by their annual performance plan, are intentionally prioritising efficient coverage for the most vulnerable.

1. SOCIAL DEVELOPMENT

South Africa has a world-renowned progressive Constitution that makes provision for the right to social security “including appropriate social assistance” for those unable to support themselves. It is the government’s Constitutional obligation to progressively realise the right to social security. But the budget presented is regressive since it cuts social security spending. It places the poorest, most vulnerable on the altar of ‘fiscal consolidation’.

The increase to the Child Social Grant (CSG) and Foster Care Grant (FCG) as announced in the National Budget Speech are below the inflation rate and will do very little to remedy the humanitarian crisis of increasing hunger, food insecurity, structural unemployment and income inequality as well as the impact of the coronavirus pandemic. No grant must be below the food poverty line of R624 at the very least.

Income support for adults

We note President Cyril Ramaphosa’s announcement that the R350 Social Relief of Distress (SRD) Grant is extended to March 2023, as stated in his State of the Nation of Address (SONA), but urge that budget be allocated for the grant to be increased to the Food Poverty Line and that budget be allocated to the Department to address the administrative challenges of the grant.

As the President rightfully indicated, the benefits of the SRD Grant cannot be underestimated. It is crucial that the government addresses the glaring gaps in the current social assistance framework for the unemployed. In line with this, a permanent Basic Income Support programme for those aged 18 to 59 years with little to no income must be implemented before the SRD Grant is terminated in March 2023.

Poverty, inequality and unemployment are not mere challenges, they are the most profound crisis confronting democratic South Africa. A comprehensive response to our socio-economic crisis should include effectively implementing job creation programmes, creating an enabling environment for job creation to flourish, and providing quality basic services in conjunction with permanent basic income support.

While the government’s Economic Reconstruction and Recovery plan and the Presidential Employment Stimulus Programme sound promising, they are not sufficient. For instance, while the third phase of the Presidential Employment Scheme (PES) has been announced, only R9.2 billion has been allocated per year for the next two years. This is a decline from the first phase of the PES in which R12.9 billion was allocated. The test for these plans and programmes remains whether the state is capable of efficiently implementing what has been promised at a scale that can address the magnitude of the socio-economic crisis we are experiencing. With more than 12 million people unemployed, and youth unemployment having reached alarming proportions, it is unlikely that enough jobs can be created anytime soon for the millions who are unemployed, facing food insecurity and despair. The introduction of additional job creation programmes to address youth unemployment is a step in the right direction.

The SRD Grant is not a handout or a burden, but a constitutional imperative which aids economic growth and is an investment in our collective future given its proven positive benefits. A large body of research has shown that income support leads to better nutritional and educational outcomes, social cohesion, job seeking behaviour and stimulates local economies. It encourages economic activity and helps to empower women who bear the burden of unpaid Caregiving work and Gender-Based Violence.

The online platform to access the grant is exclusionary the introduction of digital technology in the administration of social assistance can and will further entrench economic and racial inequality, if not managed carefully and balanced with the issues of access through a hybrid application system. There are beneficiaries and recipients who do not own or have access to digital technology including devices (i.e., laptop, desktop, cell phone); interconnectivity (i.e., WIFI, modems and opportunities to hotspot) or data to participate and access the social grants for which they are eligible. According to SASSA the grant will continue to be managed electronically, within the limited resources that SASSA has. in the light of the government wanting to reduce the size of the public service – not grow it. In order for the SRD grant to achieve its goal of alleviating poverty and providing a buffer to hunger and poverty it is crucial for the Department and SASSA to be provided a budget for human capacity to be able to facilitate a hybrid application system to be more accessible and allow for additional documents to mitigate reconsideration/in support of appeals.

Permanent basic income support for those aged 18 to 59 years with little to no income is inevitable given the government’s constitutional and international human rights obligations. Despite the undignified and inadequate value of the SRD Grant, and its systemic flaws, it is a work in progress and provides the most immediate pathway to a permanent basic income support programme and ultimately a universal basic income.

Income support for children

More than half of South Africa’s population – around 31 million people – have been born since 1994. If everything were equal, all these people would have been born into adequate living environments that did not pose a risk to them. They would have received immunisation and the health care they needed. They would have received nurturing care and early stimulation, sufficient nutrition and a decent education.

But everything is not equal in South Africa. Nearly three decades into democracy, most children are born poor and the infrastructure and services available to them remain very unequal. Investments in childhood are not discretionary awards: they are the enactment of the socio-economic rights that are enshrined in the Constitution, which sought to remedy the injustices of the past. And they are investments in the country, in the next generation of parents and workers, in social cohesion and in the economy. It is an economic and political imperative to build a stronger, better-nourished, better-educated population.

South Africa’s social assistance programme has been acclaimed as among the most effective anti-poverty strategies in the post-apartheid era. Social grants are firmly rooted in rights frameworks and enabling legislation, and they are efficient in targeting and transferring much-needed cash to poor households. The Child Support Grant (CSG) is the most pro-poor of all the grants: unlike the other grants, it is narrowly targeted via a low means test. Instead of harnessing and building on this anti-poverty resource, the past two budgets have effectively cut its value.

The increase on the CSG, from R460 to R480 per month, is lower than the other, much larger existing grants (older persons, disability, care dependency). They received a 5% increase to R1,980 from April, whereas the CSG only received a 4.3% increase. It cannot be justifiable to save money in the budget by depriving children of social assistance. Social assistance is a constitutional right, and the state bears a heightened duty to prioritize children within its plan to progressively realize social assistance.

The CSG already received a below-food inflation increase in 2021. In 2022 the increase is again below inflation (headline year-on-year CPI as at January 2022). The CSG is falling behind relative to other established grants and the cost of basic food. It is 23% below the food poverty line, the absolute minimum needed to meet basic nutritional needs for survival and development. The fact that the CSG is already substantially below the food poverty line (R624/month) means that child malnutrition and stunting will persist and even rise. This has long term consequences for society and the economy, as well as the individual people affected.

The Pietermaritzburg Economic Justice & Dignity Group monitors the cost of a basket of basic food. They calculate that the average cost of feeding a child a basic nutritious diet is R770 a month in 2022. Even with its increase in 2022/23, the CSG is 40% below this line.

Stats SA’s upper-bound poverty line is R1335. This is the amount needed each month to provide an individual with the basic necessities of life, including food and other basic essentials like clothing, shelter and energy. In 2022/23 the CSG will be 64% below this line.

The below-inflation increases will be most severely felt in the poorest 20% of households where inflation was 6.7% (decile 1) and 6.1% (decile 2). 30% of all children in SA (over 6 million) live in the poorest 20% of households.

The increase to R480 is what was projected in the previous MTEF. However, we note with concern that the previous MTEF also projected the nominal value of the grant staying constant in 2023/24 (i.e., remaining at R480 and eroding its real value). This must not happen. The 2022/23 increase to the value of the CSG is not enough, and not aligned with any clear benchmark. Some other possibilities are illustrated in the table. (The CSG value is generally kept as a round number, divisible by R10. There may have been intention to increase the CSG by 5% along with other grants, but the amount was rounded down rather than up). At the very least, the CSG should be R490 in the current year to remain equitable.

Alternative CSG increases (illustrative) % increase needed Value 2022/23 Value (rounded) Increase CSG at same % as OAP & DG 5.0% 483 490 Increase CSG in line with headline CPI 5.7% 486 490 Increase CSG in line with poorest decile CPI 6.7% 491 500 Increase CSG in food poverty line (Stats SA) 35.7% 624 630 Increase CSG to child food poverty line (PMBEJD) 68.8% 776 780 Increase CSG to upper bound poverty line (Stats SA) 190.2% 1335 1340

The projected increase in CSG beneficiary numbers seems reasonable given recent trends but does not allow for increased uptake among two categories of children where access must be accelerated: a) very young children (under 2 years) whose caregivers are eligible but struggle to access the CSG from birth. There is no provision for them to be proactively targeted and supported for inclusion; and b) increasing numbers of orphaned children living with family, who will enroll on the CSG (rather than the FCG), to receive the new CSG ‘top-up’ (an additional 50% to the value of the CSG).

5. LOCAL GOVERNMENT

In terms of section 227 of the Constitution, local government is entitled to an equitable share of nationally raised revenue to enable it to provide basic services and perform its allocated functions. The local government equitable share is an unconditional transfer that supplements the revenue that municipalities can raise themselves …. (and) provides funding for municipalities to deliver free basic services to poor households (DORB 2022, p 93)

For the 2022/23-year, local government will receive 9% of nationally raised revenue. The relatively low allocation to local government reflects its own revenue raising capacity. Of the total allocation to local government, 58% is in respect of the equitable share. In turn, the biggest component of the equitable share is the funding of the package of free basic services: for the 2022/23 year, an amount of R63.9 billion has been allocated to fund the package of free basic services (FBS) for 10.9 million households.

The FBS are a critical part of the overall social wage: the package is worth R488.42 per month for a household and is intended to ensure that all households can access a minimum amount of basic services. If households do not benefit from the subsidy they must pay for these services out of household income, exacerbating household poverty and food insecurity.

Over the past five years the number of households that actually receive the package of FBS has declined, while funding in the national budget has increased. Currently, fewer than 3 million households receive the full package of basic services from their local municipality (i.e., less than 30% of those funded in the budget).

Approximately 4.3 million South African households live below the food poverty line: these are the households that most desperately require the FBS subsidy, and for whom the implications of having to pay for these services is the most serious. At least 1.3 million households that live below the food poverty line are not receiving the FBS, despite the funding allocation from the national budget. The result is that households must divert expenditure from food to pay for electricity and water. This has a serious negative impact on household food security in general, and child nutritional status in particular.

Another 5 million households that live below the upper-bound poverty line are not receiving the FBS from their local municipality.

The result is that the social support component of the budget is actually much lower than the figures suggest, because so many households are not actually receiving the FBS benefit.

The equitable share transfer to local government is a discretionary allocation: that is, a municipality is not compelled to use the allocation to provide the FBS. However, DORB is also clear that:

If municipalities choose to provide fewer households with free basic services than they are funded for through the local government equitable share, then their budget documentation should clearly set out why they have made this choice and how they have consulted with their community during the budget process.

To date, no municipality has provided this documentation, nor has any municipality consulted with the local community on this issue.

Parliament has an oversight responsibility to ensure that one of the critical components of state expenditure – the free basic services – is actually implemented.

RECOMMENDATIONS

• Human Rights Impact Assessments as recommended by the UN Committee on Economic, Social and Cultural Rights, which South Africa is a party to - need to be undertaken whenever government wishes to propose a funding cut to socio-economic rights entitlements. A unique South African methodology for Human Rights Impact Assessments should be developed in partnership with civil society and other stakeholders, taking into account our constitutional values and the objectives in our national development plan objectives. The results of these assessments should be published and integrated into more meaningful public participation processes on the budget.
• Reverse austerity measures in the health, education, social welfare, housing, grants and other sectors to be reflected in the October Medium-Term Budget Policy Statement.
• Implement Permanent Universal Basic Income Support at least the Food Poverty Line of R624 before the end of March 2023 when the SRD grant expires.
• Allocate the Department and SASSA a budget for human capacity to be able to facilitate a hybrid application system for the grant to be more accessible and allow for additional documents to mitigate reconsideration/in support of appeals
• Increase allocation for the Public Employment Stimulus and implement it as part of a broader public sector jobs strategy.
• That oversight of the implementation of the free basic services be improved to ensure that more households actually receive the benefit.
• Fiscal sustainability must address wom_n’s and gender diverse people’s lived experience, both in terms of access to appropriate services, and in processes and decision-making structures at all levels.

ABOUT THE BUDGET JUSTICE COALITION

Civil society organizations who are part of the Budget Justice Coalition include: the Alternative Information and Development Centre (AIDC), the Children’s Institute at UCT (CI), Corruption Watch (CW), the Dullah Omar Institute at UWC (DOI), Equal Education (EE), Equal Education Law Centre (EELC), the Institute for Economic Justice (IEJ), Public Affairs Research Institute (PARI), Pietermaritzburg Economic Justice and Dignity Group (PMEJD), the Public Service Accountability Monitor (PSAM), the Rural Health Advocacy Project (RHAP), and SECTION27.

The purpose of the Budget Justice Coalition is to collaboratively build people’s understanding of and participation in South Africa’s planning and budgeting processes – placing power in the hands of the people to ensure that the state advances social, economic and environmental justice, to meet people’s needs and wellbeing in a developmental, equitable and redistributive way in accordance with the Constitution.