Division of Revenue Amendment Bill [B15-2019]: negotiating mandates

Meeting report

Provinces’ Negotiating Mandates: National Treasury responses

It must be noted National Treasury indicated that responses to similar questions and recommendations from different provinces had been grouped together to avoid repetition.

Eastern Cape Mandate

Mr M Rayi (ANC, Eastern Cape) said the province had voted in favour of the Bill. It had concerns that the current funding model of the Provincial Roads Maintenance Grant (PRMG) did not favour the province in that it was a rural province which had a lower number of surfaced (tarred) roads in comparison with other provinces. Therefore, the funding for maintenance was applicable only to a fewer number of surfaced/tarred roads. The Bill should further clarify the roles and responsibilities in the areas of delivery of water and electricity between local and district municipalities, as well as Eskom. The province indicated Eskom should improve its capacity to service the inaccessible areas of the province, as this resulted in the withdrawal of funding due to the utility not being able to access these areas. The currently allocated funds were not utilised with the Integrated National Electrification Programme (INEP) grant.

Mr Steven Kenyon, Director for Intergovernmental Relations: National Treasury, explained the funding model for the PRMG the was not intended to favour or disadvantage any province. The funding model was intended to allocate the resources needed to maintain provincial road networks in good condition. The funding model accounted for the extent of both surfaced/tarred roads and gravel roads in each province. The extent of the full provincial roads network was used in calculating the allocations for each province. Tarred roads were funded at a higher rate per kilometer than gravel roads, reflecting that maintenance work on tarred roads was more expensive.

He said the Division of Revenue Act (DoRA) allocates funding between the three spheres of government for the provision of public services, and it was adhering to the principle that “funds follow functions”.  In other words, funding in the DoRA was allocated to the organ of state legally assigned the responsibility for the function that was being funded. The DoRA could not change the assignment of functions between different organs of state. The DoRA did, however, include provisions in section 29 that regulated the transfer of funds from municipalities that were authorised for a function to another municipality, if that municipality performed the function on their behalf.

Mr Kenyon added that the recommendations raised on Eskom’s INEP would be shared with the Department of Energy, which was the transferring office for the grant. On infrastructure backlogs, he said infrastructure allocation was based on the needs of municipalities and provinces. Though there were fiscus constraints, inefficiences had remained in the delivery of infrastructure.

Free State Mandate

Mr M Moletsane (EFF, Free State) said the province had voted in favour of the Bill. It recommended, amongst other things, the current equitable share formula be reviewed because it was not biased towards rural and poor communities. It noted that the centrality of the province in the country was placing an extra burden on its resources. The province needed extra funding because its roads were over-used and maintenance was depleting its resources. It should therefore receive extra funding to meet the costs emanating from its centrality. It also suggested funds should be allocated for drought relief, because the province was one of the drought-stricken areas and one of the key agricultural hubs in the country. It further proposed the INEP grant and Municipal System Improvement Grant (MSIG) should be reviewed, as it had a negative bearing on municipalities.

Mr Kenyon responded that the local government equitable share formula was allocating more than twice as much per  household to rural municipalities as it did to metropolitan municipalities. He pointed out that several stakeholders had raised concerns about the structure of the local government fiscal framework. The Minister of Finance had, therefore, proposed that a special local government budget forum lekgotla be held to discuss the structure of the local government fiscal framework. This meeting would include treasuries, cooperative governance departments and the South African Local Government Association (SALGA).

With regard to the centrality of the province that place an extra burden on its resources, he clarified each province had got the opportunity to raise the unique factors that drive higher (or lower) costs in their province as part of the on-going review of the provincial equitable share formula. This review was being overseen by the Technical Committee on Finance, which included the National Treasury and the heads of department of the nine provincial treasuries.

Several provinces were impacted by ongoing drought conditions. Prolonged drought conditions required adaptation by farmers, businesses and households to conserve water resources. In some cases, infrastructure investments could assist in providing alternative sources of water, and substantial allocations had been made to fund such investments across the country during the 2018 adjustments budget. Some of these funds were not spent by the end of the 2018/19 financial year and, as a result, had been rolled-over into the 2019/20 financial year to fund the implementation of uncompleted projects. No requests for additional drought funding had been received by the National Treasury in the run-up to the 2019 adjustments budget.

Mr Kenyon also explained reductions to the INEP grant and the MSIG were made due to projected underspending. The reductions were not negatively impacting delivery, as the funds would, in all likelihood, not have been spent even if no reduction was made. The benefit of making this reduction was that the national government did not have to borrow the funds, only to have them go unspent. National Treasury agreed that the performance of each of these grants required attention to improve their expenditure in future. This concern would be shared with the transferring officer responsible for managing each grant.

Gauteng Mandate

Mr D Ryder (DA, Gauteng) said the province had voted in favour of the Bill. The province had engaged in public participation regarding the Bill. Some of the issue that had emanated from the stakeholders was that the equitable share should be understood better and be dynamic in terms of meeting conditions on the ground. The National Treasury should consider reviewing the equitable share formula in favour of local government. The local government’s revenue base should be revised downwards, and expenditure be revised upwards. It was further stated there should be measures in place for under-expenditure. It was also recommended the government should ensure there was value for money in the projects that were funded through the national fiscus, and that it should ensure there was consequence management for irregular expenditure.

Mr Kenyon commented that several stakeholders had raised concerns about the structure of the local government fiscal framework. The Minister of Finance had therefore proposed that a special local government budget forum lekgotla be held to discuss the structure of the local government fiscal framework. This meeting would include treasuries, cooperative governance departments and the South African Local Government Association (SALGA).

National Treasury also agreed to the recommendation that there should value for money on projects financed with public funds. Regarding punitive measures for under-expenditure, he explained the need to apply consequences for past poor performance which should be balanced with the potential for improved performance in future, to ensure that policy priorities were adequately provided for, and to ensure equity in allocations between different provinces and municipalities.

KwaZulu-Natal Mandate

Mr Y Carrim (ANC, KwaZulu-Natal) said the province supported the Bill. He reported he was impressed by the activist-orientation of the provincial committee during visits to municipalities. Civil society groups, like the Built Environment Group, were also invited by the provincial committee. The view was that money from the national fiscus to municipalities should be used for free basic services, and not be used for operational matters.

Mr Kenyon said allocations were in favour of rural areas. A forum would be held to review the local government infrastructure allocation fund.

Limpopo Mandate

Ms S Shaikh (ANC, Limpopo) said the province voted in favour of the Bill. No major concerns were raised. What came out during the stakeholder engagement was the decline in the fiscus, but the province was optimistic the national and provincial treasuries would ensure the country’s fiscus was safeguarded and utilised economically.

Northern Cape Mandate

Ms Wendy Fanoe, Chief Director: Intergovernmental Relations: National Treasury, presented the mandate because the province had no representation at the meeting. The province voted in favour of the Bill. No inputs were received from outside stakeholders, as there were no members of the public who attended the public hearings. The province observed with dismay the huge amount of R74m that it had lost in the regional bulk infrastructure grant. The Dawid Kruiper Local Municipality had failed to sign the project contract for co-funding. She reported that money allocated to the Northern Cape was not enough to deliver services in the province. The equitable share formula was not  fair  to the province. The rural nature and the vast distances travelled needed to be taken into consideration. The province was one of the hardest hit by drought, and yet there was no relief for the farmers. In the review of the equitable share, it was noted cognisance should be taken on the peculiarities of the Northern Cape, and how expensive it was to deliver services in such a vast area. The national and provincial treasuries must advise and assist municipalities on how to spend allocated funds and conditional grants for their intended purposes. However, she pointed out there was nothing national and provincial treasuries could do if municipalities failed to use the guidance and advice from these treasuries.

Ms Fanoe, as National Treasury representative, enlightened the Committee the R74m lost by the province referred to the reduction in planned spending on the Regional Bulk Infrastructure Grant on projects in the Northern Cape. The provincial government had actually received a net increase of R25.1 million in direct transfers in the Division of Revenue Amendment Bill, 2019.

The reasons for the reductions made to projects in the Northern Cape included the Dawid Kruiper Local Municipality failing to agree to a co-funding agreement for the Upington Wastewater Treatment Works. This accounted for more than half of the total reduction in planned spending on the Regional Bulk Infrastructure Project in the Northern Cape. Two other projects had been delayed, as the implementation readiness studies for the planned projects had not yet been completed and work could not begin until these studies had been completed and approved.

Concerning insufficient funds for service delivery in the province because of its vastness, and a review of the equitable share to accommodate the peculiarities of the province, she said the provincial equitable share formula was currently being reviewed. The different cost factors experienced in delivering services in each of the nine provinces, and in different areas within the provinces, formed part of this review. Provincial treasuries had been asked to submit information on these different costs as part of the information base that informed the review. The institutional component in the existing formula was already providing a substantial benefit to provinces with smaller populations, including the Northern Cape. This component was allocating the same amount to all provinces, so the Northern Cape received the same 11.1 per cent share of this component as every other province.

North West Mandate

Mr S du Toit (FF+, North West) said all four districts of the province were in full support of the Bill.  The province was in support of the R45.3m that would be ring-fenced as a direct grant which required provinces to transfer funds to the Human Sciences Research Council (HSRC). National and provincial treasuries should ensure oversight mechanisms were strengthened at municipalities, because appropriations and grants were not spent accordingly. The province also indicated the problem of drought should be taken into consideration when allocating budgets, and the stringent reduction directed to North West should be debated further.

Mr Kenyon said the ring-fenced funds would be transferred to the HSRC by the national department for the completion of this important survey. This would establish poverty baselines that would assist in improving the targeting of government programmes in the agriculture sector in future.

In addition, direct transfers to the North West provincial government had been increased by a net amount of R18.3 million in the 2019 Division of Revenue Amendment Bill. There was no net change to municipal allocations to the province for the indirect Regional Bulk Infrastructure Grant, and an increase of R17.4 million in allocations for the Integrated National Electrification Programme grant. The only net reduction in indirect grants was a reduction of R1.4 million in planned spending in the North West from the Municipal Systems Improvement Grant.

Western Cape Mandate

Mr E Njandu (ANC, Western Cape) said his province had abstained from voting in the Bill. The province was not in support of the Bill because there were provisions it wanted the national government to include in it. Amongst the other provisions it wanted, funding should be allocated to address the severe drought in certain rural areas of the province, since a state of emergency had been declared; and the national government had a  constitutional obligation to address the issue of safety and security in the province, given the high crime rate. The Western Cape had  paid out R1 billion from its own resources to address an issue that fell outside of the provincial mandate.

The Western Cape should be given additional funding to address the highest rate of migration being experienced in the country. Public services such as education, health and other forms of service delivery remained under immense pressure because no additional funds had been allocated to the health or education sectors in the province. For the government to provide essential public services to the poor, the  national government should  finalise  the Public Sector Wage Bill.

The national government should review the salaries of the 29 000 senior managers who earned more than R1.2 million per annum. These were non-specific occupation specific dispensation (OSD) posts, which the Minister of Finance, Mr Tito Mboweni, had raised, but had failed to put measures in place to address.

The national government must introduce consequence management, given the fact that billions of rands were being wasted incessantly, and it should not continue to bail out state-owned enterprises (SOEs) at the expense of taxpayers and the poor, with no consequences for accounting officers who were employed at these SOEs. Lastly, the National Health Insurance (NHI) funds should be allocated to address the severe drought and safety and security concerns in the Western Cape.

Mr Kenyon informed the Committee the provincial equitable share formula took into account Statistics South Africa’s data, updated annually on the estimated migration into and out of each province. As a result, each province was compensated in the allocation of equitable share funds for growth in their population as a result of migration. It was up to each provincial government, through their own budget process, to ensure that their education and health services were appropriately budgeted for.

Regarding safety and security, he said policing was a national mandate, not a Division of Revenue Bill issue.

The public sector wages were subject to collective bargaining agreements. There were 29 000 public sector employees who earned more than R1 million per year, as measured in terms of the cost to the employer. Most of these employees were doctors. Non-occupation specific dispensation employees accounted for less than half of the total in this category.

Concerning consequence management on wasteful expenditure, he said the head of the national department or accounting authority had the responsibility to take corrective action, and where the accounting officer had been alleged to have committed financial misconduct, the executive authority or minister should investigate. National Treasury could interfere only on who could investigate and how the investigation should be carried out.

The bail-out of SOEs was not the responsibility of the Division of Revenue Bill.

Lastly, he indicated National Treasury was not in support of the proposal to reallocate funds budgeted for the NHI to support other projects like drought in one province only, as this would distort the equity of allocations across the nine provinces.

Mpumalanga Mandate

The Chairperson said her province had voted in favour of the Bill. The province had come with findings and recommendations that emanated during the public hearings. It had raised a concern that there was no progress reported to the province on the development of the Moloto Corridor. The National Treasury was requested to indicate how much had been allocated for the development of the Moloto Corridor over the medium term expenditure framework (MTEF) period. The province had indicated there was no allocation for the upgrading of sanitation in schools. The National Treasury, it was suggested, should ensure there was an allocation for the upgrading of sanitation in schools. She added that people were concerned that the PUTCO bus service was the sole mode of transport.

Mr Kenyon clarified that the South African National Roads Agency Limited (SANRAL) planned to spend R4.5 billion on rebuilding and upgrading roads in the Moloto Corridor between 2019/20 and 2022/23. This project extended across five municipalities and three  provinces, and includes:

• Upgrading gravel access roads to surfaced roads;
• Upgrading single lane roads to dual carriageways;
• Building new dual carriageway freeway sections.

These were major upgrades that would transform the nature of road infrastructure in the Moloto Corridor, making them world-class roads, appropriate for the large volumes of traffic that move along this corridor daily. Although the project had already begun, during 2020/21 construction would intensify on the new dual carriageway freeway, and gravel roads would be upgraded to surfaced roads. SANRAL had reported that portions of the roads in the municipalities of Sekhukhune, Thembisile Hani and Greater Marble Hall Boundary were under construction in 2019/20.

The upgrading of school sanitation was a key government priority, and was funded in the School Infrastructure Backlogs Grant. The government had allocated a total of R3.4 billion to this initiative over the 2019 MTEF. The private sector had also pledged more than R250 million. The Department of Basic Education (DBE) had identified clear timeframes and delivery models. The DBE was confident that within the next three years, it would have eradicated the remaining 3 898 pit-latrines in schools. Although projects planned for implementation in 2019/20 in Mpumalanga and North West would not be implemented this year, the implementation of these projects had only been delayed, not cancelled. These projects would be allocated funding and be implemented in the 2020 MTEF.

Discussion

The Chairperson remarked it was also the mandate of the Committee to ensure funding was appropriated for the Moloto Corridor. It was not the sole sole responsibility of the Department of Transport and National Treasury. The delays in the completion of the Moloto Corridor were causing people to lose jobs, because they were always late for work. The needs of the people should dictate the budget of the government for projects. She suggested the project should be a multi-year one, so as to meet people halfway, and to make the users of the road safer, because that road was full of accidents. These accidents were a burden on the health sector. Peoples’ lives were important.

Mr Du Toit remarked that drought had been going on for more than six years. He did not understand why farmers and communities had to adapt to drought. The infrastructure grants had been taken away from municipalities and there had been no consequence management. He was not asking for a miracle, but funds had to be redistributed for drought relief. The MEC of Finance in North West had indicated there was no funding for drought. Many communities and families in North West were dependent on agriculture. The time had come for the government to put its foot down, instead of dishing out money for problems that were non-existent. The government had not realised the existing problem -- people and animals were dying, and it was not a good sight to see an animal dying.

Mr Kenyon apologised for being misunderstood on the issue of drought. What he meant was that it should not be the responsibility of individuals solely to fight drought, and did not imply the government was insensitive towards drought. The solutions to drought should include adaptation in terms of water conservation while facing changing climatic conditions. He said National Treasury was relying on provincial departments for applications for allocations.

Mr Moletsane commented the Free State was connected to many provinces, and that meant its routes were over-used. It was therefore in need of extra funding because it wanted to see a decrease in road fatalities. He also commented that the National Treasury had not said a word about the Integrated National Electrification Programme Grant and Municipal System Improvement Grant.

Mr Kenyon said he was not sure what the Free State was proposing regarding the Integrated National Electrification Programme Grant, because he had tried to explain the reductions that lead to under-spending. National Treasury was already in discussions with Eskom. He had asked all the provincial departments to submit additional costs on the equitable share, seeing that most of the provinces were vast and there were certain factors that had to be considered.

Mr Ryder suggested an awareness campaign on the equitable share should be done because it was not well understood. Even during the presentation by SALGA, no one seemed to understand it. All provinces had problems, even though individually the provinces were of the view their situation was worse. He also commented that there was a good deal of under-spending in government as well. He said good under-spending was when one used one’s minimum resources well to deliver services.

Ms Fanoe said it was true there was something called “good under-expenditure,” and that there had been many good examples of it in government.

Mr Rayi suggested there should be a joint committee meeting with the select and portfolio committees on transport on the Moloto Corridor project. The Ministers of Transport and Finance should also be invited to the joint committee meeting to account on commitments made on this project. He wanted to know if the review of the allocation would be on the allocated 43% made to provinces already. He also wanted to know if last year’s drought allocation to the Amathole District Municipality and Graaff-Reinet was still enough to accommodate last year’s situation. What was the way forward with regard to the Northern Cape’s Dawid Kruiper Local Municipality that was not signing the co-funding contract? Lastly, he wanted to find out if the Committee could be given a progress report on the eradication of sanitation backlogs in the provinces, because the Department of Basic Education had indicated it would take 100 years, while Treasury was pointing to three years.

Mr Kenyon said National Treasury was aware of the drought in the Eastern Cape. It had engaged with the provincial department on the adequacy of the drought funds.

Ms Fanoe said the review on allocations would not be on the allocated 43%. She further indicated that National Treasury would make a follow up and ask the Department of Human Settlements, Water and Sanitation to also engage the Dawid Kruiper Local Municipality in the Northern Cape. She assured the Committee the backlog would not take 100 years to clear, because the indirect grant was meant to address the backlogs. There were improvements already.

Mr Carrim supported the idea that the Committee, together with the select and portfolio committees on transport, should get together on the Moloto Project because that would help them prepare for the budgeting of the project, and give the Committee the opportunity to engage with the provincial committees on transport to mobilise communities. The whole matter needed a strategic approach. He referred to the concern that most senior managers in government were earning more than R1m per annum, but said some of them were devoted to the public service, and had opportunities in the private sector to earn more money. Lastly, he said farmers were suffering huge losses, and the consequences were dire for the entire country. If government was responsible for not taking action, then the mismanagement of resources should be blamed.

Mr Rayi asked that the Committee to be sent a list of applications on drought relief made to national Treasury, and be forwarded a list of schools per province where sanitation challenges had been addressed.

Mr Njadu stated it was important to do a follow up on the poor attendance of public hearings in the Western Cape.

Mr Ryder added the same should be done for the Northern Cape on public participation.

Mr Lubabalo Nodada, Committee Secretary, took the Committee through the internal procedures that would be followed for the processing of the final mandates.

Members agreed unanimously on the course of action.

The meeting was adjourned.