MPs should pass Appropriations Bill that is on course to cancel BEE premiums

IRR Legal has written to Parliament to encourage the legislature to pass the Appropriations Bill, which is on course to reduce BEE premiums to “nil” in R82 billion worth of public procurement.

The letter has been submitted as part of the public participation process.

BEE Premiums are the “extra” paid for identical goods or services based on race, which are presently “capped” at 25% for contracts under R50 million, in the words of senior Treasury official Willie Mathebula.

The IRR Blueprint for Growth Paper, Slash Waste & Cut Taxes, authored by Gabriel Crouse, estimated that the licit cost of BEE premiums is R17 billion.

However, the cost of BEE premiums has never been published, in direct violation of the Constitution.

The Appropriations Bill, however, is currently drafted to end all BEE premiums in R82 billion worth of public procurement in practical terms. It does so in four steps.

First, the Bill defines “transfers and subsidies” in terms of Treasury’s official 2009 “Guidelines” on reporting economic activity, as “unrequited” payments, meaning the government pays for what it believes to be in the public interest, like helping land reform beneficiaries, but does not get something back directly in return for the payment.

Under the 2009 “Guidelines” BEE premiums are an unambiguous form of subsidy. By defining “subsidies” as it does, the Appropriations Bill thereby enables some tracking of BEE premiums in the budget.

Second, the Appropriations Bill sets out the exact amount of money that may be taken from the public purse by line item, covering roughly R1.2 trillion in spending in Schedules 1 and 2 of the Bill.

Third, the Appropriations Bill explicitly reduces BEE premiums to nil in all line items where allocations are made for the procurement of “goods and services” without any allowance for “transfers and subsidies”.

For example, the Presidency’s “Policy and Research Services” allotment includes R3.9 million for “goods and services”. Under the 25% BEE premium cap, the Presidency could theoretically pay a BEE premium of almost R1 million in its new laptop, and other, purchases based on race. However, the Appropriations Bill determines that the allowance for all subsidies, including BEE premiums, in this line item is nil.

There are several items where BEE premiums are reduced to nil in this manner, which have repeatedly been drawn to Parliament’s attention.

Fourth, the Appropriations Bill also reduces BEE premiums to nil by allocating transfer and subsidy amounts that are exhausted by existing non-BEE requirements.

For example, R3.9 billion is allocated for “land reform and restitution” transfers and subsidies, with an additional R708 million allocated for procurement of goods and services (which includes lawyers’ fees) in the same line item. In principle the R708 million allocation could have been topped up with R177 million in BEE premiums to be drawn out of the R3.9 billion “subsidy and transfer” allocation.

However, IRR Legal has engaged with government officials who explained that the R3.9 “transfers and subsidies” has not been budgeted to pay for BEE premiums, but is instead supposed to go elsewhere, namely to “land reform and restitution”, as stated in the Appropriations Bill.

Furthermore, all R846 billion in transfers and subsidies mentioned in the Appropriations Bill are already intended for other purposes, as stated in each line item, rather than for BEE premiums.

That means that, in four steps, the Appropriations Bill reduces the legal allocation of BEE premiums down to “nil” for the entire R82 billion procurement budget covered in Schedules 1 and 2.

That could result in the most dramatic, positive, and popular change in recent South African legislative history, if the Bill is passed and implemented properly.

70% of respondents in a poll commissioned by the IRR last year said they would prefer BEE premiums to be reduced to R0 one way or another. In the more recent poll conducted during this year’s budget crisis, the portion who preferred eradicating BEE premiums went up to 80%. Value for money is clearly the winning choice.

The risk, however, is that Parliament passes the Appropriations Bill as it is, only for the law not to be implemented. That has already happened repeatedly regarding BEE premiums: despite the constitutional requirements of “transparency” and “cost management”, Treasury has never once reported the cost of BEE premiums since their inception decades ago.

Media contacts: Gabriel Crouse, IRR Legal Executive Director Tel: 082 510 0360 Email: gabriel@irrlegal.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za