Division of Revenue Amendment Bill: briefing & public hearings

Meeting report

Division of Revenue Amendment Bill: Briefing

Mr O Terblanche (DA), a Western Cape Member of the National Council of Provinces (NCOP), briefed the Committee on the Division of Revenue Amendment Bill (DoRAB).

He said that allocations for national government and the provinces had remained unchanged. Funds had been added to some provinces and municipalities, and R3.4 billion has been allocated for drought relief. He described the allocations that had been made to the agricultural sector, for infrastructure damaged by floods and infrastructure at schools, funding for the health sector and the drilling of boreholes, human settlement grants, and R33 million for the development of public transport in the Western Cape.

Mr Steven Kenyon, Director: Local Government and Budget Framework, National Treasury (NT), said the 2018 Division of Revenue Act (DoRA) was approved by the legislatures at the start of 2018 and signed by the President on 1 June. The Act made equitable share and conditional grant allocations to provinces and municipalities and laid out the rules for those grants. The Division of Revenue Amendment Bill (DoRAB) made amendments to the DoRA. Section 12(4) of Money Bills Amendment Procedure and Related Matters Act required that the Minister of Finance table a DoRAB with the revised fiscal framework if the adjustments budget effected changes to the DoRA. The purpose of the presentation was to illustrate changes to provincial and municipal allocations in the 2018 DoRAB.

The main allocation in the budget was for disaster relief. Since 2014, the country had been gripped by a drought, with a national disaster being declared in April 2018, which had lapsed in June. The Inter-Ministerial Task Team on water scarcity and service delivery had led the government’s response to the drought. By October, national dam storage was at 77%. The drought had affected most parts of the country between 2015 and 2018, but had been more concentrated in the 12 months prior to April 2018.

National Treasury had already allocated extensive funding through a grants system before the 2018/2019 financial year, which included the provision for livestock feed for drought-affected farmers in the Northern Cape and Western Cape, and the provision of emergency water supplies, with R1.56 billion allocated through conditional grants and R1.59 billion of municipal and provincial funds reprioritised towards drought response. The percentage shares of allocations between the provinces were as follows: Eastern Cape (19.5%), KwaZulu-Natal (KZN) ( 41%), Northern Cape (10.6%) and the Western Cape (28.9%(.

In the 2018 Budget Speech it was announced that R6 billion would be set aside in 2018/2019 for various purposes, including drought relief and infrastructure development. As part of how allocations were determined, National Treasury ran a process to allocate funds where there were two windows for applications, in June and August 2018. Applications were assessed with the National Disaster Management Centre, and sector departments, provinces and municipalities were requested to provide input.

The criteria used to evaluate these applications included the ability of the affected sectors to spend and account for funds, the existence of baselines in programmes, the prioritisation of projects and delivery of water in due time, the need to implement interim measures, the prioritisation of projects that improved long-term drought resilience, and the cost for potential water yield. Municipalities that could afford to, were expected to co-fund projects and funding was required to be proportional to the extent of the drought.

Regarding the Appropriation Act, National Treasury could initiate spending, and the expenditure announced in the Budget Speech could be spent before tabling an Adjustments Appropriation Bill. Direct allocations to provinces and municipalities had been gazetted on 4 October 2018. 

With regards to the allocation of funds for drought relief, a total of R3.4 billion of the amount allocated to drought response funding had been allocated to all three spheres of government, and R1.98 billion had been added to direct conditional grants for drought relief, a portion of which was directed to water programmes. Drought relief allocated to provinces included the granting of R266.5 million to six drought-affected provinces as part of the Comprehensive Agricultural Support Programme (CASP) grant for feed and water for livestock, R200 million as part of the Land Care Programme grant to improve the resilience of agricultural land, and R200 million for the Provincial Disaster Relief grant to provinces, which had had to be replenished by additional funds as the allocation as set out in the 2018 Budget Speech for the grant had been depleted. 

Drought relief allocated to municipalities included direct conditional grants and indirect conditional grants. Direct conditional grants were comprised of R288.1 million allocated to the Water Services Infrastructure Grant to fund water supply augmentation projects to access groundwater and implement water conservation measures, and R1.03 billion had been allocated to the Municipal Disaster Recovery Grant that would be transferred to Cape Town, Nelson Mandela Bay and Mangaung to subsidise water augmentation projects that would be co-funded.

Indirect conditional grants were comprised of R1.01 billion for the indirect Water Services Infrastructure Grant for water supply augmentation projects, and R6 million for the indirect Regional Bulk Infrastructure Grant. The 2018/2019 amounts allocated to provinces for drought relief through conditional grants totalled R2.99 million for all provinces, with the Western Cape being allocated the most, R823.9 million.

Mr Marumo Maake, Director: Provincial Budgets, National Treasury described the process of disaster recovery allocations, remarking that released disaster funds were immediately released from provincial and municipal disaster relief grants. Thereafter, the National Disaster Management Centre assesses and verifies damage to infrastructure which determines the funds allocated in the next budget or adjustment budget for disaster recovery. According to the 2018 DoRAB, the following disaster recovery funds had been allocated for the repair of damage caused by storms in KZN and fires in the Western Cape:

• R16.3 million to KZN through a new Provincial Disaster Recovery Grant;
• R175.8 million added to the Education Infrastructure Grant to repair 87 schools in KZN and 22 schools in the Western Cape; and
• R199.5 million added to the Health Facility Revitalisation Grant for the repair of 14 hospitals in KZN.

Furthermore, R1.3 million had been added to the CASP Grant, R100.1 million to the Human Settlements Development Grant (HSDG) to repair subsidised houses damaged in KZN and the Western Cape, and R143.3 million to the Municipal Disaster Recovery Grant -- R138.7 million for municipalities in KZN, and R4.6 million for the Bitou local municipality (LM) in the Western Cape.

The government had announced the establishment of a Budget Facility for Infrastructure (BFI), which would put proposed large infrastructure projects through an assessment process before recommending funding. It would include engagement with relevant sector stakeholders and the Presidential Infrastructure Coordination Commission (PICC).

So far, two projects had been recommended through the BFI for potential long-term funding as allocated in the initial funding in the 2018 DoRAB. This was to add R166 million to the National Health Insurance (NHI) Indirect Grant (Health Facility Revitalisation Component) for the procurement of medical equipment and planning and designing Limpopo’s proposed new academic hospital, as well as adding R33 million to the Public Transport Network Grant for the City of Cape Town to design its new phases of the of MyCiti public transport network.

National Treasury had also devised several reprioritisations in the NHI Indirect Grant, such as adding R350 million to address staff shortages within the national health sector, R150 million from the Health Facility Revitalisation Component towards the functionality of health facilities, R42 million to address emergency maintenance needs in the Northern Cape, and the allocation of R30 million to facilitate the smooth transition of the HPV vaccine programme to provinces. Other adjustments included roll-overs, such as the R1.3 million not spent in 2017/2018 for the Learners with Profound Intellectual Disabilities Grant in the Eastern Cape and Northern Cape, and R18.4 million for the Substance Abuse Treatment Grant to complete treatment facilities in the Northern Cape and Free State. An additional allocation of R800 million had also been allocated for the School Infrastructure Backlogs Grant. Lastly, with adjustments to conditional grants at the level of local government, indirect allocations had been converted to direct allocations to support re-demarcation costs, such as the Municipal Systems Improvement Grant, and R23.3 million had been converted so that funds can be paid directly to municipalities that have incurred costs.

Ms P Langa presented the adjustments to the Western Cape 2018/19 provincial allocations. The total of adjustments made to conditional grants was R239.1 million, of which R213.2 million was allocated to Agriculture, Forestry and Fisheries, R25.8 million towards Basic Education and R127 000 towards Human Settlements.

With regards to the adjustments made to Western Cape Municipal, additions have been made to the Municipal Disaster Recovery Grant, with adjustments of R553 million to Western Cape municipalities (for drought relief) and R4.6 million to Garden Route municipalities (for repair and rehabilitation of water and electricity infrastructure). Additions had also been made to Public Transport Network Grant (R33 million for Western Cape municipalities) and the indirect Water Services Infrastructure Grant for Drought Relief (R28.9 million to the Overberg municipalities, and R30 million to the Garden Route municipalities).

Discussion

The Chairperson thanked National Treasury. He opened the floor for questions from the Committee, Provincial Treasury and the public but there were none. He commended National Treasury on a job well done. He remarked that although the meeting had been advertised in the newspapers, public participation needed to be improved.

The meeting was adjourned.