ATC231121: Report of the Standing Committee on Appropriations on the Division of Revenue Amendment Bill [B33 – 2023], Dated 21 November 2023

Standing Committee on Appropriations

Report of the Standing Committee on Appropriations on the Division of Revenue Amendment Bill [B33 – 2023], Dated 21 November 2023

The Standing Committee on Appropriations having considered the Division of Revenue Amendment Bill [B33-2023] (National Assembly – section 76), reports as follows:

1. Introduction

The Minister of Finance tabled the Division of Revenue Amendment Bill (hereafter referred to as the Bill) in Parliament on 1 November 2023 during the presentation of the 2023 Medium Term Budget Policy Statement (MTBPS). The Bill was tabled in Parliament in terms of section 12(4) of the Money Bills Amendment Procedure and Related Matters Act No. 9 of 2009 (as amended by the Money Bills Amendments Procedure and Related Matters Amendment Act, No 13 of 2018). The Act requires the Minister of Finance to table a Division of Revenue Amendment Bill with a revised fiscal framework if the adjustments budget affects changes to the Division of Revenue Act for the relevant year.

The Bill was referred to the Committee on 15 November 2023 after the National Assembly adopted the 2023 Revised Fiscal Framework. The Committee received a briefing from National Treasury on the Bill in its entirety on 8 November 2023. The Financial and Fiscal Commission, Parliamentary Budget Office and the South African Local Government Association were also invited by the Committee to comment on the Bill. To facilitate public participation, the Committee published adverts in print media in all 11 official languages from 2 to 4 November 2023. The following stakeholders made submissions at the public hearing that was held on 17 November 2023:

Amandla.Mobi;
Rural Health Advocacy Project;
TB Advocacy and Accountability Consortium;
Section27;
Congress of South African Trade Unions;
Ilifa Labantwana; and
National Union of Metalworkers of South Africa.

The Bill and its annexures address the following:

Changes to schedules;
Changes to provincial allocations;
Changes to local government allocations; and
Changes to gazetted conditional grant frameworks and allocations.

This report focuses on the proposed amendments to the Division of Revenue Act (Act No. 5 of 2023) as tabled by the Minister of Finance and the matters raised during the engagements with the invited stakeholders and the organisations that made submissions in response to the advertisements.

2. Summary of changes in the 2023 Division of Revenue Amendment Bill

An adjustments budget provides for unforeseen and unavoidable expenditure; appropriation of monies already announced during the tabling of the annual budget (but not allocated at that stage); the shifting of funds between and within votes where a function is transferred; the utilisation of savings; and the roll-over of unspent funds from the preceding financial year.

3. Equitable division of revenue raised nationally among the three spheres of government

Table 1: Schedule 1: Equitable division of revenue raised nationally among the three spheres of government

Spheres of government	Column A
Spheres of government	2023/24 Main Allocations	Adjustment	2023/24 Adjusted Allocation
	R’000	R’000	R’000
National1, 2, 3	1 370 506 089	(2 555 077)	1 367 951 012
Provincial	567 527 713	17 558 206	585 085 919
Local	96 546 258	(1 357 517)	95 188 741
Total	2 034 580 060	13 645 612	2 048 225 741

National share includes conditional allocations to provincial and local spheres, general fuel levy sharing with metropolitan municipalities, debt-service costs, the contingency reserve and provisional allocations
The direct charges for the provincial equitable share are netted out

Source: National Treasury (2023 Division of Revenue Amendment Bill)

4. Changes to provincial government allocations

4.1 Additional funds to the provincial equitable share

A proposed amount of R17.6 billion is added to the provincial equitable share to fund the costs of implementing the 2023/24 wage agreement in the health and education sectors (Schedule 2 of the Bill).

4.2 Fiscal consolidation reductions

Direct provincial conditional grants are reduced by a proposed total amount of R6.2 billion, including reductions of (Schedule 4, Part A and Schedule 5, Part A of the Bill):

A proposed amount of R125 million from the comprehensive agricultural support programme grant;
A proposed amount of R36 million from the ilima/letsema projects grant;
A proposed amount of R7 million from the landcare programme grant: poverty relief and infrastructure development;
A proposed amount of R58 million from the early childhood development grant;
A proposed amount of R1.6 billion from the education infrastructure grant;
A proposed amount of R28 million from the HIV and AIDS (life skills education) grant;
A proposed amount of R50 million from the maths, science and technology grant;
A proposed amount of R1 billion from the district health programmes grant;
A proposed amount of R440 million from the health facility revitalisation grant;
A proposed amount of R1.7 billion from the human settlements development grant;
A proposed amount of R477 million from the informal settlements upgrading partnership grant: provinces;
A proposed amount of R31 million from the expanded public works programme integrated grant for provinces;
A proposed amount of R31 million from the social sector expanded public works programme incentive grant for provinces;
A proposed amount of R68 million from the community library services grant;
A proposed amount of R43 million from the mass participation and sport development grant; and
A proposed amount of R550 million from the provincial roads maintenance grant.

4.3 Reductions to the school infrastructure backlogs grant

A proposed total amount of R260 million is reduced from the school infrastructure backlogs grant. Of this amount, R175 million forms part of the budget consolidation and R85 million lowers the reduction to the early childhood development grant (Schedule 6, Part A of the Bill).

4.4 Reprioritisation from the school infrastructure backlogs grant

A proposed total amount of R57 million is reprioritised from the school infrastructure backlogs grant to the vote of the national Department of Basic Education. Of this amount, R32 million will fund compensation of employees pressures; and R25 million will fund information and communication technology upgrades (Schedule 6, Part A of the Bill).

4.5 Rollover of funds in the school infrastructure backlogs grant

A proposed total amount of R137 million is rolled over in the school infrastructure backlogs grant for schools in the Eastern Cape, KwaZulu-Natal and Limpopo (Schedule 6, Part A of the Bill). Of this amount:

R93 million is for the completion of projects of the Sanitation Appropriate for Education initiative for schools which deals with the replacement and removal of inappropriate and unsuitable sanitation, including pit toilets at schools;
R26 million is for the completion of projects of the Accelerated Schools Infrastructure Delivery initiative which deals with eradicating backlogs in schools without water, sanitation and electricity and to replace schools constructed from inappropriate material; and
R18 million is for associated management costs.

5. Changes to local government allocations

5.1 Declared underspending in the local government equitable share

In January 2023, the National Energy Regulator of South Africa (NERSA) approved a bulk electricity tariff increase of 18.7 per cent for the 2023/24 financial year. The subsidy for free basic electricity in 2023/24 was calculated to include an additional 2 per cent in anticipation of higher municipal tariff increases than those published in January, due to the difference in the financial years of Eskom customers and municipalities. A further R1.4 billion was left unallocated in the local government equitable share to enable additional funding for municipalities should the final municipal tariff increase that was expected to be published between March and June 2023, exceed the 20.7 per cent increase provided for. In June 2023, NERSA approved a municipal tariff increase of 15.1 per cent. The unallocated amount of R1.4 billion in the local government equitable share is therefore surrendered as declared under-expenditure (Schedule 3 of the Bill).

5.2 Fiscal consolidation reductions

There is a proposed total downward adjustment of R3.4 billion to direct municipal conditional grants, (Schedule 4, Part B and Schedule 5, Part B of the Bill), as follows:

A proposed amount of R9 million from the infrastructure skills development grant;
A proposed amount of R58 million from the programme and project preparation support grant;
A proposed amount of R32 million from the expanded public works programme integrated grant for municipalities;
A proposed amount of R1.2 billion from the municipal infrastructure grant;
A proposed amount of R306 million from the informal settlements upgrading partnership grant for municipalities;
A proposed amount of R553 million from the urban settlements development grant;
A proposed amount of R180 million from the integrated national electrification programme grant for municipalities;
A proposed amount of R40 million from the neighbourhood development partnership grant;
A proposed amount of R600 million from the public transport network grant;
A proposed amount of R237 million from the regional bulk infrastructure grant; and
A proposed amount of R244 million from the water services infrastructure grant.

5.3 Funds for post disaster repair and recovery

A proposed amount of R1.2 billion is added to the municipal disaster recovery grant to fund the reconstruction and rehabilitation of municipal infrastructure damaged by the floods that occurred between February and March 2023 (Schedule 5, Part B of the Bill).

5.4 Top-up of the municipal disaster response grant

Due to the floods that occurred between February and March 2023, the municipal disaster response grant was depleted by June 2023. A proposed amount of R372 million is added to this grant to enable immediate response by municipalities in the event that a disaster occurs in the remaining months of the 2023/24 financial year (Schedule 7, Part B of the Bill).

5.5 Conversion of municipal infrastructure grant allocations

A proposed amount of R10 million from uThukela Local Municipality’s allocation is converted to an indirect allocation for implementation of the Ekuvukeni Water Supply Project by the Department of Cooperative Governance on the municipality’s behalf. The project entails the replacement of an asbestos rising main from the Oliphanskop water treatment works (Schedule 5, Part B of the Bill).

Similarly, a proposed total amount of R20 million from Emfuleni Local Municipality’s allocation is converted to an indirect allocation to address the outfall of sewer in Evaton and Sebokeng (Schedule 6, Part B of the Bill).

5.6 Conversion of neighbourhood development partnership grant allocations

A proposed amount of R88 million in the neighbourhood development partnership grant is converted from the direct to the indirect component of the grant. This is to expedite project implementation in municipalities that are experiencing administrative and financial challenges (Schedule 5, Part B and Schedule 6, Part B).

5.7 Reduction in the integrated national electrification (Eskom) grant

As part of the fiscal consolidation reductions, the integrated national electrification (Eskom) grant is reduced by a proposed amount of R250 million.

5.8 Reprioritisation from the integrated national electrification (Eskom) grant

A proposed amount of R53 million is reprioritised from the integrated national electrification (Eskom) grant to the vote of the national Department of Mineral Resources and Energy to fund the rehabilitation of derelict and ownerless mines.

5.9 Shift of funds from the regional bulk infrastructure grant to the water services infrastructure grant

A proposed amount of R309 million has been shifted from the indirect component of the regional bulk infrastructure grant to the indirect component of the water services infrastructure grant. This is to enable the Department of Water and Sanitation to manage contractual obligations, budget pressures, accruals and payables for projects in several municipalities (Schedule 6, Part B of the Bill).

6. Changes to gazetted frameworks and allocations

6.1 Changes to the municipal disaster recovery grant framework

A proposal is made to amend the framework of the municipal disaster recovery grant to
ring-fence the additional R1.2 billion for the repair and reconstruction of municipal infrastructure damaged by the floods that occurred between February and March 2023. The framework will be gazetted in terms of section 15(2) of the Division of Revenue Act, 2023, after consulting Parliament. The condition stipulates that these additional funds may only be utilised for projects that have been approved and listed in the post disaster verification assessment reports and business plans approved by the National Disaster Management Centre (NMDC).

6.2 Correction of an error in the indirect allocations of the regional bulk infrastructure grant

A proposed amount of R20 million for the Kirkwoord Water Project that was erroneously allocated to Dr Beyers Naude Local Municipality is corrected to an allocation to Sundays River Valley Local Municipality.

6.3 Expanded public works programme integrated grant for provinces

The former Western Cape departments of Human Settlements, and Transport and Public Works have been merged to create the new Department of Infrastructure, following a Proclamation signed by the President on 20 February 2023. This merger took effect from 01 April 2023. Allocations of R3 million and R4 million that were previously allocated to the former Western Cape departments of Human Settlements, and Transport and Public Works respectively have been combined, as the framework of the expanded public works programme integrated grant for provinces requires that eligible provincial departments sign a grant agreement with Department of Public Works and Infrastructure. This change will allow for the signing of one grant agreement with the newly formed department.

7. Comments and hearings on the Bill with identified stakeholders

The section below provides an overview of the comments that were made on the Bill by the invited stakeholders.

7.1 Financial and Fiscal Commission

The Financial and Fiscal Commission (FFC) submitted that over the 2024 Medium Term Expenditure Framework (MTEF), the budget for provinces would reach R784.6 billion. Between 2023/24 and 2024/25, these allocations would increase from R706.4 billion to R720.5 billion, representing an insignificant nominal growth of 2 per cent. The total allocation for provinces was expected to remain low in the outer years of 2024 MTEF, with marginal nominal growth of 4.4 per cent and 4.27 per cent in 2025/26 and 2026/27, respectively. The FFC further submitted that the provincial equitable share (PES) was expected to increase from R585.1 billion in 2023/24 to R589.5 billion in 2024/25, a marginal nominal increase of R4.4 billion, or 0.75 per cent; and was expected to increase marginally in the outer years of the 2024 MTEF and reach R644.3 billion in 2026/27. The FFC reported that the key driver of this marginal increase in the PES funding was compensation of employees, particularly in the education and health sectors. The FFC pointed out that the additional funding to the amount of R68.2 billion over the 2024 MTEF was not meant for any improvement of service delivery. The FFC further submitted that the PES was projected to increase by lower than inflation over the 2024 MTEF, which would negatively affect the provinces’ finances.

Regarding conditional grant allocations, the FFC submitted that there had been a decrease of R2 billion in 2023/24 to fund the 2023 public service wage agreement and debt service costs. The FFC was of the view that this would negatively affect provinces’ ability to deliver services and infrastructure to poor households, including housing. However, the FFC noted that the allocation of provincial conditional grants was projected to increase by 8 per cent in 2024/25 and further increase marginally in the outer years of the 2024 MTEF. The FFC explained that this marginal growth in conditional grants for provinces, especially in the outer years of the 2024 MTEF, was viewed against expenditure needs in key sectors such as education and health and the dependency of provinces on conditional grants to deliver infrastructure. In addition, some reforms, such as the implementation of the National Health Insurance (NHI) was likely to affect the implementation of key government projects and programmes negatively.

Regarding local government, the FFC noted the additional funds in the 2023 MTEF; explaining that multiple risks impacted on municipalities’ ability to deliver services. The FFC stated that the local government equitable share (LGES) would grow at a nominal average of 5 per cent, with 6 per cent in 2024/25 and 5 per cent and 4 per cent, respectively, in the outer years of the MTEF. However, in real terms, it was set to grow by an average of 0 per cent over the 2023 MTEF. As such, the FFC encouraged government to reconsider the growth rate of the LGES in the outer years so that poor households were cushioned against the rising cost of free basic services. The FFC pointed out that while there was a need for municipalities to be funded equitably, municipalities should make use of available resources efficiently, while optimising their existing own revenue base.

The FFC stated that local government conditional grants were primarily used to fund the development of bulk infrastructure underpinning basic service delivery. The FFC welcomed the decision to reconfigure and revise the Urban Settlement Development Grant (USDG), the Integrated City Development Grant (ICDG) and the Municipal Infrastructure Grant (MIG) to ensure that municipalities were better positioned to respond to climate change. In addition, the FFC welcomed the additional R370 million to the Municipal Disaster Recovery Grant, in response to the recent disasters affecting many parts of the country. However, the FFC implored municipalities and government to be more proactive than reactionary about climate change. The FFC reiterated its concern over the poor spending on repairs and maintenance of municipal infrastructure; highlighting that proper infrastructure maintenance played a crucial role in addressing climate change impacts.

The FFC stated that overall, local government conditional grant allocations were set to increase by 7 per cent in the 2024/25 financial year. Thereafter, the allocations were set to increase at diminishing rates of 5 per cent and 1 per cent in 2025/25 and 2026/27, respectively. In real terms, local government conditional grants would increase by an annual average of 0 per cent. In the context of the 2023 Budget, in which several fiscal consolidation measures had been announced, the FFC found this trend not surprising, but worrisome, given the infrastructure backlogs plaguing the local government sphere. The FFC implored government to rethink the growth of these conditional grants in the outer years, and implored municipalities to strengthen the spending capacity for these grants.

The FFC commended government on the Eskom debt relief afforded to municipalities and explained that the Municipal Finance Management Act (MFMA) Circular No.124 set out conditions meant to help municipalities restore financial prudence, accountability, and overall integrity while receiving relief of their debt to Eskom. However, the FFC raised concerns over the punitive nature of the conditions attached to the debt relief, particularly the condition that Eskom would take over the electricity provision function from a municipality who failed to meet the debt relief conditions. The FFC explained that electricity was the main revenue source for municipalities and taking this function from them would have detrimental consequences on municipal sustainability, further worsening their dependency on national transfers.

The FFC made the following recommendations in respect of the Bill:

Noting the significant cuts to conditional grant funding to provinces, which were likely to negatively affect implementation of key projects including the NHI and infrastructure projects; the FFC recommended that government developed a comprehensive macroeconomic policy framework to inform its fiscal consolidation efforts and a funding plan to ensure implementation of key projects and programmes were not negatively affected.
The FFC reiterated its previous recommendation that National Treasury, in consultation with SALGA, the Department of Cooperative Governance (CoGTA) and provincial governments, should urge local municipalities to apply effective revenue enforcement and credit control mechanisms and improve billing and accounting systems to increase payment and cost coverage levels. Officials responsible for managing municipal finances should possess the competencies and skills required to perform their roles. In addition, municipalities should apply the prescripts of legislation such as the Municipal Systems Act, the Municipal Property Rates Act, the Municipal Structures Act, the MFMA, and other municipal service provision by-laws to enforce payment from residents.

The FFC recommended that the National Treasury review the condition for municipal debt relief that involved the taking over of the electricity license from a municipality who failed to comply with the other conditions of the debt relief. Alternatively, the FFC recommended that CoGTA, in consultation with SALGA, ensured that the credit control systems of Eskom and municipalities were aligned by means of a memorandum of understanding (MOU), and that Eskom assist municipalities with credit control via electricity disconnections within areas supplied by Eskom.

7.2 South African Local Government Association

The South African Local Government Association (SALGA) indicated that a weaker global growth outlook and the risks thereof will have significant implications for local government. This may result in reduced nationally raised revenue that will impact on the funding allocation to local government. Local government faced increased pressure to deliver more services with declining budgets. This will lead to delays in service delivery and deteriorating service quality as local government struggle to cope with limited resources. SALGA recommended that national government should design a comprehensive social security programme to protect vulnerable communities that are impacted by the negative global economic outlook and its effects.

With regard to the domestic economic outlook, SALGA submitted that the downward revision of the GDP forecast will have negative implications to local government. Furthermore, loadshedding continued to have a negative impact on local government as is evident in the impact study on finances and infrastructure (2023) which found that:

R21 billion was lost due to unserved energy;
R1.6 billion was spent on fixing vandalized, stolen electrical infrastructure and equipment;
R1.4 billion was spent on fixing vandalized WWTW facilities;
R1.1 billion was spent on overtime and contractors; and
R596 million was spent on security (electrical and WWTW).

SALGA welcomed the initiatives to include the private sector in the financing of public infrastructure as well as the review of the PPP regulations that will unlock financing, technical abilities and greater participation in PPP projects. SALGA proposed that there be consultation of organized local government on all municipal legislative changes as well as constant impact assessment of legislation to achieve its intended outcomes. SALGA made the following recommendations in respect of the economic outlook:

That national government should design a comprehensive social security programme to protect vulnerable communities that are impacted by the negative global economic outlook and its effects.
That National Treasury notes the financial impact of power outages and must consider compensating municipalities for unintended costs associated with energy crisis.
That the implementation of the economic recovery strategies be inclusive of local economies in municipalities to assist businesses in distress.
That local government must be allocated funding for the rehabilitation of roads damaged due to the failure of the rail system.

SALGA submitted that organised local government does not accept the -0.02 per cent or -R3.3 billion downward revision of the gross allocation to local government for the 2023/24 financial year. SALGA submitted that the budgeting allocations over the MTEF continued to stagnate and decline for local government. Proposed allocations over the MTEF ignored the current realities in local government of growing expenditures which outpaced eroding own revenues of municipalities. SALGA asserted that the structural under-funding of the local sphere of government and the realization of the aspirations contained on the White Paper on Local Government 1998 cannot be attained by decreases from nationally raised revenue.

With regard to the local equitable share, SALGA submitted that it welcomed the 6 per cent increase in 2024/25 financial year; however, the growth was on a downward trend over the outer years. This was concerning when looking at population growth and unemployment trends in municipalities. To this end, SALGA recommended that increments should be adjusted for inflation to determine the real increases. Without considering inflation, the proposed increases may not reflect genuine growth in funding. SALGA continued that national government must determine the equitable share allocations which take into account the full costs in the formula.

SALGA asserted that section 152(2) of the Constitution of the Republic of South Africa obligated municipalities to strive to achieve the objects of local government within the financial and administrative capacity that exists. A deeper analysis of these obligations indicated that the functions allocated to local government far outweighed functions allocated to the other 2 spheres of government. SALGA’s own analysis has established that local government was responsible for 46 per cent of the constitutional functions whilst it received the lowest share of nationally raised revenue.

Thus, there was disequilibrium in the allocation of resources versus the allocation of functions.

SALGA made reference to MFMA Circular 124 (Municipal Eskom Debt Relief) dated 31 March 2023 and submitted that it supported the majority of the conditions with the exception of condition 6.14 which related to the revocation of distribution licenses of municipalities. SALGA asserted that the condition must be removed and replaced with section 78 of the Municipal Systems Act assessment and that funding be made available for smart meters and water collection tools for recipients of the Eskom Debt Relief Package.

7.3 Parliamentary Budget Office

The Parliamentary Budget Office (PBO) provided an overview of the division of nationally raised revenue between the three government spheres, with national receiving 48.8 per cent, provincial 41.7 per cent, and local government 9.5 per cent to fulfil their respective responsibilities. The PBO submitted that the average annual growth over the 2024 MTEF to the national, provincial, and local government spheres were 2.3 per cent, 3.6 per cent and 4.4 per cent, respectively. The PBO commented that growth from the revised 2023/24 to the 2024/25 financial year was only 1.8 per cent at national level, 2.0 per cent at provincial level, and 5.3 per cent at local government level. The PBO added that the increase in the PES might not be sufficient to cover the implementation of the public service wage agreement.

The PBO indicated that government was continuously attempting to increase the proportion of available non-interest spending to local government due to spending pressures from lower economic growth and high borrowing costs, which was not evident in the outcomes. However, transfers to provinces and municipalities were estimated to grow by 4.8 per cent over the 2024 MTEF, which was lower than the previous estimate of 6.8 per cent in the 2023 MTEF.

8. Public submissions on the Bill

The sections below provide summaries of the inputs made by organisations and individuals in response to the advertisement calling for submissions from the public on the Bill.

8.1 Amandla.Mobi

Amandla.Mobi (AM) welcomed the extension of the R350 Social Relief of Distress (SRD) grant to March 2025, but noted that the budget allocation had decreased from R40 billion in 2022 to R34 billion. AM submitted that the SRD grant had been plagued by maladministration and that exclusionary regulations had led to millions of applicants being rejected. Therefore, the budget cut would lead to more people being pushed into deeper poverty. AM repeated its previous call for National Treasury to increase the grant amount and to urgently turn it into a basic income grant (BIG) and further asked that all social grants be increased by R500.

AM reported that, since its inception in 2020, the Presidential Youth Employment Initiative (PYEI) had provided employment opportunities for more than 830 000 youth and that by August 2023, four million young people were reported to have been registered onto its network. However, it expressed disappointment that its year-long extension came at the expense of other social intervention programmes under the Presidential Employment Stimulus. It remained unclear which programmes would be defunded; while youth organisations such as the Youth Capital, were actively advocating for more funding. Unemployed youth relied on the programme for money and work experience to increase their employability in an already challenging environment. AM called on the Committee to determine which programmes would be cut and to encourage the Presidency to find the money to continue funding the stimulus package.

AM was encouraged by the Minister of Finance’s plans for more taxes in the next budget and reiterated the need for a wealth tax. It stated that the South African Revenue Service (SARS) was doing well with identifying and tracking individuals evading tax. It called on the Committee to urge National Treasury to increase personal income tax for those earning over R1 million annually, and to introduce an annual net wealth tax at a higher rate of 3 per cent for those with a wealth of more than R3.8 million; 7 per cent for those with a wealth of more than R30 million; and 9 per cent for those with a wealth of more than R146 million.

AM expressed concern over the reduction R24 billion in the budget for public healthcare in the MTBPS. This was while the country was struggling with a shortage of health care practitioners and overcrowded public hospitals that faced shortages in resources and medicine. In addition, funding for HIV/AIDS and TB services had been cut by R1 billion, with further cuts to healthcare infrastructure funding. While more money was allocated for wage costs in the education sector, the budget for

education had not been increased; with a R 1.7 billion reduction to school infrastructure funding. AM submitted that reducing funding for the health and education sectors further exacerbated poor health and inequality.

AM further submitted that National Treasury had requested an extension to provide it with the research evidence behind its decision not to tax the rich more and to increase social grants. AM stated that it was alarming that National Treasury could not readily provide such information. Following different petitions signed by hundreds of thousands, a fraction of AM’s demands had been implemented, but this had been undermined by continuous austerity budgets. While National Treasury claimed that the country had no money, corruption scandals continued with millions being misused, under-spent, or unaccounted for.

8.2 Rural Health Advocacy Project

The Rural Health Advocacy Project (RHAP) acknowledged the work by the national department of health to ensure that provinces would receive the additional allocations needed to fund the increases to health care workers agreed in 2023. However, while the immediate provincial health funding crisis was averted, RHAP was concerned that doing this required significant adjustments to several programs including the district health program grant (HIV/AIDS) and the health facility revitalization grant. A further concern was that the funding of wage increases was limited to health and education. Provinces were expected to fund other staff increases from within existing budgets which will likely lead to erosion of provision of welfare services, maintenance of essential infrastructure, and decreased work opportunities for rural communities who were heavily dependent on publicly funded services.

RHAP submitted that South Africa was facing significant economic uncertainty both globally and domestically, with National Treasury expecting economic growth to remain weak. Lower tax revenue, higher debt servicing costs, and further public sector wage negotiations will place additional strain on the already fragile health services. RHAP asserted that in order to ensure that access to health care services by underserved groups such as rural communities, will require that essential services be prioritized. RHAP made the following recommendations:

That a joint sitting of the portfolio committee health, finance and appropriations be called to consider the impact of budget cuts on the state’s ability to meet its constitutional mandates.
That all provinces be invited to present plans detailing what measures are being implemented to ensure that rural health services are protected from budget cuts.
That the national department of health be invited to outline what plans are in place to implement the National Human Resources for Health Strategy.

8.3 TB Advocacy and Accountability Consortium

The TB Advocacy and Accountability Consortium (TBAAC) submitted that in 2022, Tuberculosis (TB) was the second leading cause of death globally, following only COVID-19. TB caused almost twice as many deaths as HIV/AIDS according to World Health Organisation’s (WHO) annual TB report. TBAAC stated that the TB Recovery Plan was initiated as a TB programme intervention to address care cascade loss and to accelerate efforts towards attaining the NSP, UNHLM, SDG and End TB targets. However, the current constrained fiscal conditions impacted negatively on the TB Recovery Plan. TBAAC highlighted challenges such as delayed TB notifications and undiagnosed persons living with TB especially in rural areas and submitted that there was a need for the ring-fencing of budgets in public service hospitals. TBAAC proposed that the following be done to address the issue of TB:

The TB recovery plan necessitates increased linkage to care.
There is a need for coordinated action, priority and transparency.
Strengthening community outreach with focused investment in priority districts.
There is a need for Community Health Workers that are well trained, well-staffed clinics and efficient collection of results - better use of the SMS notification system.
Amidst uncertainty on future funding flows, it is essential that Parliament considers how existing publicly funded health care capacity is optimized and that it prioritizes those with the greatest need.
That R500 million for TB community outreach programmes be included in the District Health grant.
That civil society be part of response interventions in respect of TB.

8.4 SECTION27

Section 27 expressed concerns about the general impact of budget cuts on the delivery of services. Underfunding of the education and health sectors were cited as having a devastating bearing especially on children’s access to education and in general, access to primary health care services by the citizens.

Section 27 raised concerns that the budget was not gender-sensitive and does not address the plight of women. In this regard, reference was made to the negative bearing the budget has on the women-headed households and the employment opportunities in which women are underpaid. In light of this, Section 27 recommended that fiscal policies should reflect interventions to address gender and racial inequalities.

Section 27 expressed its appreciation on the increase of the Provincial Equitable Share (PES) and for the making funds available to assist with the compensation of teachers and nurses. However, it bemoaned the effects of the real-term budget reductions as these impact on the projected quality of services to be rendered to the communities. Section 27 registered concerns on the contracting allocations regarding compensation of workers and the skeletal staff that operate in key areas like education and health.

Over and above, Section 27 made the following recommendations:

That Parliament should develop a more open, broad-based, and inclusive budget in line with the `human rights impact assessment` during the budget consultation process.
That government should introduce gender-based budgeting to address the plight of women-led households.
Gender-based budgeting should find expression in the review of the public sector wage bill.
Healthcare allocations should be aligned to the CPI and government must show its plans to meet its health goals with a lean budget.

8.5 Congress of the South African Trade Unions

The Congress of South African Trade Unions (COSATU) appreciated that a large component of the adjustments in the Bill, namely R17.6 billion, catered for the 2023/24 public wage agreement. It stated that workers had the right to a living wage and protection from inflation erosion and that rebuilding collective bargaining and multi-year agreements would prevent the need to adjust budgets after the fact to accommodate wage agreements. COSATU further welcomed the additional allocations of R1.2 billion and R372 million to repair infrastructure damaged by natural disasters.

COSATU expressed concern over cuts in provincial grants amounting to R6.2 billion in respect of infrastructure grants of R1.7 billion and to municipal infrastructure to the amount of R1.2 billion. Whilst appreciating the pressures to reprioritise, COSATU expressed deep concern over significant budget cuts to the following departments and programmes:

Basic Education: Education Infrastructure, R1.6 billion; School Infrastructure Backlogs, R179 million; and Early Childhood Development Infrastructure, R58 million.
Health: District Health (HIV/AIDS) R1 billion; and Health Facilities Revitalisation R440 million.
Agriculture, Land Reform and Rural Development: Comprehensive Agricultural Support R124 million.
Human Settlements: Urban Settlements Development R1.7 billion and R553 million; Informal Settlements Upgrade R476 million and R305 million.
Transport: Provincial Roads Maintenance R550 million; and Public Transport Network, R600 million.
Integrated National Electrification Programme: R302 million and R180 million.
Water and Sanitation: Regional Bulk Water Infrastructure, R236 million; and Water Services R244 million.

COSATU found it concerning that the Bill was silent on the reasons for, and impact of, some of these cuts. Furthermore, no mention was made regarding what mitigation measures could be put in place to reduce the impact of said cuts. COSATU further asked what measures were being put in place to capacitate provincial and local governments to spend efficiently.

COSATU made the following recommendations:

Government needed to urgently intervene at Transnet and Metrorail to secure and rebuild the freight and passenger railway network and modernise ports. Turning Transnet around was crucial to avoid a mining jobs bloodbath and a revenue crisis.
Government needed to deal with the real obstacles suffocating the economy, workers, and businesses if the economy is to grow, and unemployment and debt reduced. Government needed to table an aggressive Budget that protects the poor and rebuilds the State.
Government must provide additional support to Eskom, which was making considerable progress, to end loadshedding and ensure reliable and affordable electricity.
Dysfunctional municipalities needed to be overhauled and basic services restored. Debt relief provided for various municipalities was positive but needed to be accompanied by capacity-building interventions.
SARS needed to be allocated additional resources to address tax and customs evasion, conduct lifestyle audits of the wealthy and generate badly needed revenue. SARS had proven itself to be efficient and needed further funding to increase tax compliance from 64 percent to 70 percent over next two years. This will generate an additional R120 billion in revenue.
Critical frontline vacancies in the South African Police Service, the National Prosecuting Authority and courts needed to be filled to enable them to crack down on crime and corruption.
Government must grant relief to commuters and the economy by reducing taxes consuming 28 per cent of the fuel price and to place the chaotic Road Accident Fund under administration to lessen its need for fuel levy hikes.
The Presidential Employment Programme must be expanded to accommodate two million active participants by the February 2024 national budget, to help young people earn a salary, gain experience, and enter the labour market.
The crucial SRD Grant needed to be increased to the food poverty line to recover value lost to inflationary erosion, and its recipients must be linked to skills and jobs.
Badly needed infrastructure investments must be expedited and not frozen.
Government should ensure that the two-pot pension reform is implemented in 2024 and the immediate relief increased to R50 000 for indebted workers, providing relief for millions and injecting a badly needed stimulus into the economy.

8.6 Ilifa Labantwana

Ilifa Labantwana’s submission focused on the importance of funding early childhood development (ECD). It believed that ensuring universal access to the full package of quality ECD services for children and caregivers, as envisioned in the National Development Plan (NDP), was the single greatest opportunity to reduce structural inequality, improve working conditions and tackle unemployment in the country. Ilifa Labantwana reported that the link between investments in ECD and economic outcomes was well documented. Furthermore, poor early childhood outcomes were directly associated with a wide range of negative socio-economic consequences, from reduced economic growth, lower returns to investment in basic and higher education, poorer health outcomes, drug abuse, higher unemployment, and crime. Conversely, in an era of constrained public finances, investing in ECD could be among the most cost-effective routes to job-rich economic growth. According to its modelling, through incremental, well-targeted investments in the ECD sector, starting with additional annual funding of only R700 million, government could –

Improve the skills and working conditions of around 200 000 women already working in the sector;
Create 300 000 new livelihood opportunities for women in township and rural economies; and
Relieve childcare burdens for up to two million caregivers.

In addition, investing in ECD services would stimulate local economic activity, particularly in low-income communities, through auxiliary services, infrastructure and goods, and more cash transactions. In this way, ECD could be a significant driver of economic development and reductions in gender inequality in the short-medium term. It could further dramatically close the school-readiness gap and improve the returns to investment from basic education spending. However, policies addressing basic nutrition, childcare and early learning, and support for caregivers, had been grossly underfunded. Current funding for early learning programmes attended by 2.2 million children amounted to only R4 billion, 0.2 per cent of government expenditure. This was pale in comparison to expenditure of R310 billion on basic education and R136 billion on post-school education and training. Ilifa Labantwana commented and made the below recommendations in respect of the Bill.

Provincial Equitable Share

National Treasury, NDoH, DSD and provincial departments must commit to ensuring that any impact of budget cuts on human rights and especially children’s rights are minimized or avoided.
Parliament may require evidence from National Treasury that due regard was given to the impact of the proposed cuts on the rights of the vulnerable –for example, human rights impact assessments.
Provincial education departments must be capacitated with the appropriate human resources to manage improvements in quality and access to ECD.
Members of Provincial Legislatures should apply proper scrutiny to provincial adjustments budgets.

ECD Conditional Grant

That the Department of Basic Education and provincial education departments consult the ECD sector on a plan to effectively spend ECD infrastructure funding to ensure there are no further cuts in 2024/25.
That the ECD subsidy be increased to R20 per child per day in 2024/25 and to R45 by 2030, to meet the National Development Plan targets.

Nutrition

The ECD subsidy is well targeted at children in low-income communities and since a portion must be spent on food, increasing the subsidy could serve as an excellent nutrition intervention.
That a national young child nutrition programme be introduced through the 43 000 Early Learning Programmes (registered and unregistered) in South Africa.
That the Child Support Grant of R505 per month be increased to the Food Poverty Line of R760 per month.

8.7 National Union of Metalworkers of South Africa

The National Union of Metalworkers of South Africa (NUMSA) highlighted the resultant impact of the government`s application of austerity measures and how these contribute to the malfunctioning state of the municipalities. Regarding the ratio of civil servants versus the population, NUMSA indicated that the country has less civil servants that are expected to serve a population of 62 million. In its submission, NUMSA pointed to this as a direct cause for a brain drain.

NUMSA decried the failure of the macro-economic policies as a direct cause of the state of dysfunctionality of the State-Owned Enterprises like Transnet and Eskom. According to NUMSA, these SOEs lose infrastructure due to vandalism. On the other hand, NUMSA commented on the alarming rate of youth unemployment which stood at 60 per cent and the general unemployment rate which stood at 42.1 per cent.

NUMSA also highlighted the devastating impact of loadshedding on the closures of businesses, and therefore, losing potential tax contribution from the closed businesses. NUMSA crafted the following recommendations for consideration by the Committee:

There must be an urgent intervention on Transnet and Metro Rail to unblock freight challenges through, among others, use of modern technology for effective and optimum functionality of these SOEs.
There should be an income grant for unemployed people for poverty reduction.
Government should fund programmes that increase skills and job opportunities that are key to making citizens independent and productive.

8.8 [email protected] poll

This platform could not be located on any search drive and as such could not be invited to make an oral presentation during the public hearings. A total of 453 submissions were received via the [email protected] platform. Based on the identical nature of the responses (No, I don’t, all the above), the platform ran what seemed to be poll. Unfortunately, Parliament has no idea of how the question(s) were worded. Some participants added information which included them stating that (1) South African government was a Welfare State; (2) The R350 covid payment should stop; (3) Child support should be limited to 2 children; (4) All payments to elected politicians in all 3 tiers of government should be halved; (5) public employee salaries should be frozen; (6) government Ministers should be cut to no more than 20, with no Deputy Ministers; (7) Any woman of child bearing age that receives any government payment, including student loans must agree to receive contraceptive injections whilst receiving the payments.

9. Committee findings and observations

Having deliberated and considered all the submissions made by the above stakeholders on Division of Revenue Amendment Bill [B33-2023], the Standing Committee on Appropriations makes the following findings and observations:

91. The Committee notes and welcomes the proposed addition of R17.6 billion to the provincial equitable share to fund the costs of implementing the 2023/24 wage agreement in the health and education sectors.

9.2 The Committee notes with concerns the proposed reduction of R6.2 billion in direct provincial grants allocation. The Committee is concerned that provinces have limited revenue sources and are mostly dependant on conditional grants to deliver on their mandates. The Committee is of the view that these proposed reductions will negatively affect ability of provinces to deliver services and infrastructure to poor households.

9.3 The Committee notes with concerns the proposed reduction of R260 million on the schools infrastructure backlog grant. Given the poor state of some public schools, particularly in rural provinces, the Committee is concerned that these proposed reductions will further delay the eradication of inappropriate schools’ infrastructure and further disadvantage poor household who are mostly dependant on public schools for education.

9.4 The Committee notes and welcomes the proposed rollover of R137 million in the school infrastructure backlogs grant for the replacement of inappropriate and unsuitable sanitation, including pit toilets schools in the Eastern Cape, KwaZulu-Natal and Limpopo provinces.

9.5 The Committee notes with concerns the proposed reduction of R3.4 billion in direct conditional grants to municipalities due to government fiscal consolidation drive. The local government sphere is at the centre of service delivery due to its close proximity to societies. The Committee is concerned about the possible negative service delivery implications of these proposed allocation reductions, particularly on infrastructure grants.

9.6 The Committee notes and welcomes the recommendation of the FFC that government should develop a comprehensive funding plan to ensure that the implementation of key projects and programs are not delayed because of budget cuts.

9.7 The Committee notes and welcomes proposed total amount of R1.2 billion added to the municipal disaster recovery grant to fund the reconstruction and rehabilitation of municipal infrastructure damaged by the floods that occurred between February and March 2023. The Committee encourages the Department of Cooperative Governance and Traditional Affairs to ensure that affected municipalities speedily reconstruct and rehabilitate affected municipal infrastructure to minimise the negative impact of these natural disasters on the lives and livelihoods of residents.

9.8 The Committee notes the proposed amendments to the framework of the municipal disaster recovery grant to ring-fence the additional funds for the repair and reconstruction of municipal infrastructure damaged by the floods that occurred between February and March 2023.

9.9 The Committee notes and welcomes the conversion of the municipal infrastructure grant allocation of R10 million from uThukela Local Municipality’s allocation to an indirect allocation for implementation of the Ekuvukeni Water Supply Project by the Department of Cooperative Governance on behalf of the municipality. Furthermore, the Committee notes and welcomes the conversion of municipal infrastructure grant allocation of R20 million from Emfuleni Local Municipality to an indirect allocation to address the outfall of sewer in Evaton and Sebokeng. The Committee is of the view that, where there is a need and identified capacity gaps within municipalities, national government should be able to intervene in the interest of service delivery. However, such interventions must be preceded by transparent consultations and agreements must have been reached with the affected municipalities.

9.10 The Committee notes and welcomes the total amount of R88 million in the neighbourhood development partnership grant converted from the direct to the indirect component of the grant to expedite project implementation in municipalities that are experiencing administrative and financial challenges.

9.11 The Committee notes the recommendation by both the FFC and SALGA that National Treasury should reconsider the condition to take-over the electricity distribution licenses from municipalities should they fail to comply with the conditions of the debt relief. However, the Committee is of the view that there should be consequences for non-compliance with the debt relief arrangements and encourages all municipalities to ensure that they comply with all the debt relief arrangements.

10, Recommendations

The Standing Committee on Appropriations, having considered submissions from various stakeholders on the Division of Revenue Amendment Bill [B33-2023], recommends as follows:

10.1 That the Minister of Finance ensures that National Treasury corrects its proposed changes to the conditional grants frameworks in line with Section 15(2) of the 2023 Division of Revenue Act.

10.2 The Committee recognises that expenditure management and fiscal consolidation is important as a temporary intervention to protect the fiscus in the face of lower revenue collection. The Committee however stresses that long term sustainability can only be achieved by growing the economy at higher rates. In this regard all departments across the three spheres of government must implement the South African Economic Recovery and Reconstruction Plan without further delay.

10.3 The Committee is concerned about infrastructure projects overshooting budget allocations; thus, it is recommended that government ensures that proper checks and balances must be in place for projects to be implemented within budgets and timeously.

10.4 Infrastructure projects have a big multiplier impact, including opportunities for SMMEs and businesses owned by women and youth. The Committee urges government to ensure that these companies who receive tenders for infrastructure projects must offer opportunities to SMMEs, women and youth.

10.5 That the Minister of Finance ensures that National Treasury introduce more transparent and credible processes be introduced in procurement to ensure the attainment of value for money.

10.6 That the Minister of Finance ensures that National Treasury advertise all tenders at local community level after the contracts have been awarded inclusive of successful companies, names of directors, contract value and itemised billing.

10.7 Government and private companies should use infrastructure budgets to ensure localisation of goods and services and to create jobs for South Africans, especially young people.

11. Committee Recommendation on the Bill

The Standing Committee on Appropriations, having considered the Division of Revenue Amendment Bill [B33-2023] (National Assembly) referred to it and classified by the Joint Tagging Mechanism (JTM) as a Section 76 Bill, recommends that the Bill be adopted, without amendments.

12 Conclusion

The responses to the recommendations as set out in section 10 above must be sent to Parliament as well as the Committee by the relevant Executive Authorities within 60 days of the adoption of this report by the National Assembly.

Report to be considered.

Documents