Division of Revenue Bill: National Treasury briefing and Financial and Fiscal Commission recommendations

Meeting report

Division of Revenue Bill: National Treasury (NT) presentation
Mr Kenneth Brown, Deputy Director General: Intergovernmental Relations, National Treasury, briefed the Committee on the Division of Revenue Bill B4-2010 (the Bill). He noted that the Bill was intended to provide a framework for the equitable division of revenue anticipated to be raised and distributed equitably to the national, provincial and local spheres of government for the 2010/11 financial year. It was framed in terms of Section 214 of the Constitution and Section 10(5) of the Intergovernmental Fiscal Relations Act.  His presentation also spelt out the responsibilities of all the three spheres in pursuance of their mandates. The Bill dealt with management of roll-overs, particularly setting out how grants that were not utilised could be absorbed back into the system. The need to build capacity was also one of the focus areas that the Bill sought to address. National Treasury said it was important to bear in mind that capacity building was not a forever-ongoing process, although it was recognised that massive amounts of resources were required.

Land and rural development was also identified as one of the Bill’s priority areas, and so this needed to be fairly funded. He noted that the African National Congress (ANC) had stated the issue of land and rural development as one of its five key priorities. Programmes of land reform and land restitution could not be implemented without a strong financial backing from the government. It was projected that towards the end of the current financial year, government would spend approximately R4 billion on land reform and about R2 billion on restitution. Initiatives such as willing buyer/willing seller were said to be moving at a slow pace and hence there was a need to look into means of improving them. Land reform, in the form of rural development, could not be complete without providing communities with access to water and sanitation. Such requirements necessitated the need to inject even more resources into the land and rural development programmes.

Mr Brown noted that the Bill as it stood had 39 clauses and schedules 1 to 8, comprising 14 attachments, but once it was enacted only the 39 clauses and the eight schedules would be incorporated into the Division of Revenue Act. There were a few changes that had been made to the Bill of the previous financial year. One of those was the removal of the Expanded Public Works Programme incentive grant, which was to be put under the conditional grant framework. The Gautrain Rapid Rail Link loan was also removed, as it was no longer a necessary programme. The Bill introduced a few new clauses, most notably the provision that would allow for the deduction of unspent grants for the local government sphere. Another critical change to the Bill, which would be driven by the Human Settlement Department, would be the accreditation of 27 major municipalities, starting with the top six metropolitan cities.

In relation to the Provincial Government Equitable Allocation, Mr Brown noted that there were few changes made with regard to conditional grants allocated to provinces. The 2010 budget was set to retain last year’s equitable share budget formula, albeit that it would be under review. The Eastern Cape Province would receive a decrease in its equitable share allocation from 15.6% to 15.2%, while the North West province would also receive a decrease in the equitable share allocation, from 7% to 6.6%. Western Cape would receive an increase from 9% to 9.2%, and Gauteng province would move from 16.9% to 17.3%

In relation to the Local Government Allocation, Mr Brown noted that there would be an overall increase of the local government equitable share allocation. An additional grant would be allocated in the form of an infrastructure grant. The conditional grants in the 2010/11 financial year were set to be increased by a significant margin, with specific emphasis on providing water and sanitation facilities to schools and clinics. Infrastructure financing would also receive priority and an increased allocation of R19.7 billion in the current financial year. The same programme would receive an allocation of R29.4 billion in the 2012/13 financial year. The increases were said to be indicative of the important role that local government was envisaged to play in the future. The capacity and other operational transfers to local government were seen as more stagnant in comparison to the infrastructure allocations.

Financial and Fiscal Commission (FFC) proposals and recommendations
A few recommendations were made by the Financial and Fiscal Commission (FFC) with regard to the Bill. One of those was a call for the prioritisation of infrastructure development and maintenance. FFC appealed for more funds to be allocated, particularly for the acceleration of the Siyenza-Manje government service delivery strategy at both provincial and local government level. Its recommendations with regard to the social grants touched on the need to increase the roll-out of grants to poor people in order to cushion them against the adverse impact of the global financial crisis. There was a need to review the Expanded Public Works Programme (EPWP) to ensure that it addressed directly the critical skills that were needed by the labour market. Other programmes that the FFC believed should be reviewed were the performance of public hospitals to ensure they were able to provide quality health care, which was identified as one of the priorities of government. The management and financing of road infrastructure was identified as another key area which could be fostered through greater coordination of all the three spheres of government. Recommendations were also made concerning provision of water and sanitation. The government needed to continue with its provision of free basic water to the poor and also to put in place stronger regulatory measures of water tariffs in order to cross-subsidise those who could not afford otherwise to pay for them. There was also a need to improve the sanitation policy, with special emphasis on education on how to maintain healthy sanitation practices, as a tool for engagement with communities.

Discussion
Mr M Swart (DA) asked whether district municipalities received an equitable share simply because of their control of District Management Areas, and what would happen if the new law which would remove that control came into force.

Mr Brown said the reality of matter was that there were some districts which were bigger and wealthier than others, in terms of their source of revenue. The Department of Cooperative Governance and Traditional Affairs had a task team which was reviewing the structure and funding model of districts and finding ways of aligning the fiscal system to respond to the goals of the Department. The entire mechanism could best be described as the need to get in place proper governance and administration structures which linked everybody to one common objective.

Mr Brown gave an example of the Steve Tshwete Local Municipality in Mpumalanga, saying he considered it one of the best run municipalities in the country, and one that was even better run than the City of Cape Town”. The entire top management of the municipality had remained the same over a long period of time, and they had developed a good working relationship with provincial and national spheres of government. As a result, all their activities were run with a single intention by all stakeholders. Perhaps other municipalities could look at the Steve Tshwete model and copy the interventions that were used there to offer better service delivery.

Mr L Ramatlakane (COPE) said the presentation mentioned concepts like the new grant for municipalities, which was to be implemented through innovative methods of improving infrastructure. This would mark a shift from the conventional way of developing infrastructure, which was no longer viable. His worry was that the statement was loaded with unfamiliar jargon and needed to be “unpacked” and restated in layman’s terms.

Ms R Mashigo (ANC) asked for clarity as to how the municipalities would be accredited, in line with one of the new clauses in the Bill.

Mr Brown said that the National Treasury’s interaction with the Human Settlement Ministry had resulted in National Treasury receiving information that the process of accrediting municipalities was expected to be completed by 2014. In the early phases of accreditation, the six big metros would be the first to be accredited,  and then this process would be rolled out to other municipalities over a period of time. The process of accrediting the six big metros had already begun. Accreditation was a concurrent function between the National and Provincial spheres, in terms of the Housing Act of 1997.

Ms B Ngcobo (ANC) requested more clarity on the impact of the Expanded Public Works Programme in the area of skills development and job creation.

The Chairperson said Ms Ngcobo raised an important question with regard to the impact of public works. In addition, he asked whether there had been any evaluation of the EPWP, in particular as to whether it had delivered on its mandate or not and what challenges, if any, it faced. It was important to keep in mind that EPWP was created to help create job opportunities.

Mr Brown replied that, based on the assessment done between 2004 and 2009, it seemed that 1.6 million short-term jobs had been created, and he gave a further breakdown that 955 were created on the infrastructure side, 468 in the water and environment sector, and 174 job opportunities in other sectors. It was, however, important to accept the fact that EPWP alone would not solve the country’s high unemployment levels. It was a temporary measure that needed to be supplemented with more robust measures of fighting unemployment in the country.

Ms N Mkhulusi (ANC) said it was a pity that some of her questions could perhaps be better answered by specific departments. She made a suggestion to the Chairperson that perhaps, in future, those individual departments should attend so that Members could raise questions around their functions. This would, for instance, include the Department of Public Works.

Mr E Chaane (ANC) asked what would now be the role of the Provincial Treasury Department in light of the new changes brought about by the Bill. He also asked what the views of the Treasury were with regard to the need to build more dams, in the context of infrastructure development, especially considering that South Africa was water scarce.

Mr Brown said the success of certain developmental initiatives, especially at local government level, would be largely dependent on intensive capacitating of provincial treasuries to make them able to do proper oversight over the municipal financing mechanism. Those provinces which had already started the process of empowering provincial treasuries had started to reap the rewards, which included quicker detection and solving of the problems. Examples of those provinces which had started building capacity within provincial treasuries were the Western Cape, Gauteng and KwaZulu Natal

In relation to the dams, Mr Brown said Mr Chaane had raised an important comment that needed serious consideration. National Treasury would welcome any proposal that would seek to address the problem of water shortage in the country. He recalled an engagement he had had with the Department of Water, which had included discussions to the effect that the challenge of reticulation had to be addressed before intensive programmes of building dams could be started

Mr Chaane said Mr Brown needed to clarify how exactly National Treasury would go about assisting those municipalities which were struggling with spending their conditional grants, and asked how the withholding of funding from non-performing municipalities would be carried out.

Mr Brown said Clause 6 of the Bill spelt this out. There would be a service delivery contract agreement between, for example, a province and a municipality. Depending on the reason for the failure, the provincial government would have powers to withhold, stop or re-allocate the grant until such time when the challenges were removed.

The Chairperson said the Constitution spoke of a unitary State and the concept of co-operative governance. He asked how to ensure that provinces and local government aligned their programmes of action in a manner that reflected those characteristics of a unitary State and ensured that they would act in line with the spirit of cooperative governance. He also enquired how involved in these efforts was National Treasury.

Mr Brown said National Treasury was a key partner every step of the way. National Treasury’s Chief Director for local government infrastructure development had closer working links with municipalities to foster the harmonious working relationship, which was guided by the broader objectives of service delivery to the people. That could only be achieved if all three spheres of government had a coordinated plan of action that reflected the values correctly identified by the Chairperson.

Ms Mthembu asked specifically on the grant for nutrition. She said in most cases, especially in KwaZulu Natal, there were massive delays, resulting in learners at school who were dependent on those grants having to attend school without receiving the benefit of the grant.

Mr Ramatlakane asked what was meant by the comment about the recommendations made by FFC, which had proposed the need for behavioural change in the infrastructure development programme.

Mr Brown said the issue of behavioural change was first raised by the Head of the FFC, and that perhaps the Committee could pose the question directly to him when he visited the Committee.

Ms Ngcobo remarked that massive funding had been allocated in the form of conditional grants for infrastructure development. Despite this, there were many municipalities in those areas where funding had been allocated which still had portholes in their roads. She asked, therefore, what monitoring mechanisms there were to ensure that municipalities used the funds properly.

Mr Brown replied that oversight was a responsibility that also extended to provincial legislatures, so that they could ensure that all infrastructure needs were met. The situation at present was that infrastructure would be initiated without the requisite infrastructure needs analysis, and that often resulted in unnecessary backlogs which could not be easily be detected by the National Treasury. Better contract management, human development and constant consultations with stakeholders could go a long way in solving problems around infrastructure.

The meeting was adjourned.