Division of Revenue Bill: Financial and Fiscal Commission submissions

Meeting report

JOINT BUDGET COMMITTEE
21 August 2007
DIVISION OF REVENUE BILL: FINANCIAL AND FISCAL COMMISSION SUBMISSIONS

Chairpersons: Ms L Mabe (ANC), Mr B Mkhalipi (ANC, Mpumalanga)

Documents handed out:
Financial and Fiscal Commission presentation
Expenditure reports for the first quarter from Government department (Transport, Education, Safety and Security

Audio recording of meeting

SUMMARY
The Financial and Fiscal Commission presented a submission on the Division of Revenue Bill 2008/9, in which it examined and commented on the allocation of financial resources. Included in the submissions were suggestions in relation to the National Schools Nutrition Programme and the possible extension of that programme also to secondary schools, as well as its improvement at primary levels. Suggestions were made on responsibilities of provincial governments and the need to improve procurement procedures, use local service providers, upgrade hygiene and infrastructure and improve monitoring. Recommendations were also made on learner support material. The FFC also commented on the financing of roads and transport infrastructure, Housing Delivery, and the economic implications of the  2010 FIFA World Cup. FFC identified the legacies and recommended that the fiscal policy should focus on long term objectives and ensure that the budget deficit did not exceed 3% of gross domestic product. Suggestions were also included in respect of performance of provincial governments. Concerns were raised by Members on the sustainability model of the National School Nutrition Programme, whether it was given sufficient priority at Provincial Government level, and definitions of learner support material. The concurrent responsibilities of provincial and local government on roads infrastructure management, the failure always to ensure that non government organizations were acting in accordance with government priorities and the FIFA World Cup implications were also discussed. In conclusion the Chairperson requested that FFC undertake further investigations into the benefits to the second economy from the 2010 Fifa World Cup, the sustainability models used by the Northern Cape in relation to the Schools Nutrition Programme, and road management strategies in provinces. He also suggested that FFC undertake collection of information on provinces that were implementing the nutrition programmes, schools without electricity and sanitation and assist in defining Learner Support Material. 

MINUTES
Financial and Fiscal Commission (FFC) Submission
Dr Bethuel Setai, Chairperson of the Financial and Fiscal Commission, explained that the Joint Budget Committee would monitor and report on government expenditure. The Financial and Fiscal Commission (FFC) made submissions in terms of the Intergovernmental Framework Act and the Constitution and would today make recommendations and submissions on the 2008 Division of Revenue Bill (DORB).

Mr Jaya Josie, Deputy Chairperson, FFC, introduced other commissioners and staff of the Commission and summarised the scope of the presentation. He noted that those critical areas identified had the potential to affect service delivery in communities.

Mr Bongani Khumalo, Manager: Fiscal Policy Analysis, FFC indicated that the FFC believed it was feasible for the National School Nutrition Programme (NSNP) to be extended from primary schools to secondary schools. The Northern Cape was already providing for some needy learners in secondary schools with funding from both the conditional grant and the main departmental budget. All Provincial Education Departments (PED) were expected to adopt and entrench the NSNP as their full responsibility. However, it would be necessary for provincial education departments to hire appropriately skilled personnel to implement the programmes, instead of relying on contract staff who had limited commitment. The budgetary allocation for NSNP in primary schools should be increased to cover those learners presently excluded. In particular the programme should be implemented in "no-fee" schools. There was a need for the national department to develop on national norms and standards, and ensure better information about needy schools. It might be necessary to supplement the NSNP conditional grant with provincial funding. Procurement procedures for service providers should target local residents. Hygiene and infrastructure must be upgraded and the provincial departments should improve their internal capacity to monitor and evaluate the NSNP and its effectiveness in alleviating the plight of poor learners. There should also be serious consideration to extending the number of feeding days.

The FFC, as part of its mandate, also presented recommendations on the review of financing of school infrastructure and educational outcomes. It was felt that the framework for the Provincial Infrastructure Grant (now called the IGP) should support infrastructure development in the most needy areas, and where it was most likely to improve outcomes in schools.

The FFC further recommended, in the educational area, that Leaner Support Material (LSM) should be defined to mean stationery, textbooks, and learner and teacher aids in line with international standards or trends. The budget for the LSM should be separate from maintenance, repairs and equipment. This would assist in monitoring of over expenditure or under expenditure.

In respect of the financing of Roads and Transport Infrastructure the FFC had recommended that all provinces must implement effective road management systems in order to gather accurate data of roads conditions and the data could be used in road spending priorities. It warned that the pending review of the Provincial Equitable Shares (PES) should consider provincial road expenditure needs and must be configured to enable provinces to fund their maintenance needs. If this was not done, the condition of roads would continue to worsen and the costs to fix them would rise exponentially.

In respect of Financing Housing Delivery, the FFC recommended that steps should be put in place to collect data on homelessness in South Africa, and should be used as part of the housing formula in assessing housing needs. This would allow the Department of Housing to assess more accurately whether homelessness was linked directly to housing supply shortages.

Dr Ramos Mabugu, Programme Manager: Macro and Public Finance, FFC went on to consider the economic impact of the 2010 FIFA World Cup. FFC had observed that a positive impact on imports might lead to a balance of payment deficit, and hence inflationary pressure. It was estimated that the owners of capital would stand to benefit more than labour, that high-income earners would also benefit more than lower earners, but that on the whole household income will increase by 0.42%. Projections indicated that national government, followed by local government, would receive the bulk of the revenue generated by the event. 

FFC had also identified two legacies of the World Cup. The first was of a national nature, judged on the technical capacity of the country to host mega events. The location-specific legacy would relate to experience gained by host cities. There was a risk of cost overruns and project delays due to supply shortages. FFC recommended that the fiscal policy should focus on long-term objectives by ensuring that the budget deficit does not exceed 3% of gross domestic product (GDP). So far GDP did not appear to have been affected by infrastructure developments.

Mr Conrad Van Gass, Manager: Budget Analysis, FFC, reported that the criteria used to measure fiscal performance in provinces were derived from Section 214 (2) (a) to (j )of the Constitution. These included  national interest, development needs, stable and predictable revenue shares. The quantitative aspects of the analyses involved comparing budget or spending trends over the past three financial years with the medium term expenditure period (2007-2009).

In relation to performance of provincial governments, Mr van Gass recommended that the government departments should develop a uniform or standardised methodology for measuring socio-economic impact so that FFC could monitor and evaluate spending based on the socio-economic conditions of the Province. There should be an attempt to set stable and predicable growth paths over a seven year cycle, to institutionalise best practice planning and budgeting methods and to report fully on service delivery programmes.

Discussion
Mr E Sogoni (ANC, Gauteng) sought clarification on the criteria that were applied to classify “no-fee" schools, as he felt that the current classification did not reflect the real poverty levels or situations in various communities. Some schools in black townships were emptying as the parents preferred to take their children through to former Model C schools. He also expressed a concern about the standardisation of methodology that measured socio-economic conditions,  as provinces were diverse in terms of their economic performance and had different priorities. He cautioned against a "one size fits all" approach.
 
 Mr Josie indicated that ideally the FFC would like to see free and compulsory education for primary schools by 2028. He said that the method of assessing progressive realisation had to be the same, otherwise it would create serious confusion in terms of monitoring and evaluation.

Mr Khumulo added that the issue of “no-fee" schools was an issue both of principle and of implementation, and it was more complex than it appeared at first to be. The question was whether government was targeting communities or schools,  but so far the FFC had not been informed of real implementation challenges. Once the school has been identified as a “no- fee" school, that was an indicator that the community required government support.

Mr D Botha (ANC, Limpopo) raised a concern with regards to the delivery of text books at schools, even though the stationery was often delivered on time. He asked for comments from the FFC on the lack of provincial governments' involvement or participation in the Integrated Development Plan (IDP) process, which in turn led to overlapping and wasteful expenditure. He was also concerned about the absence of monitoring and evaluation systems in Provinces to assess compliance of non governmental organisations (NGOs) against the provincial development priorities.

Co-Chairperson Mr Ralane added that similar problems also applied at national levels. The National Development Agency provided funding to NGOs that implemented programmes contrary to development priorities of the province or local government.

Mr Van Gass indicated that provinces were poorly capacitated on areas of monitoring and evaluation. There was indeed a problem of a host of development funds that were fragmented in every department.

Ms D Robinson (DA, Western Cape) sought clarification on the definition of homelessness, and asked whether this would include informal settlements and people on the street.

Mr Jaya Josie indicated that the homelessness and informal settlements could not be considered together, as this would effectively amount to double counting and would be problematic for fiscal planning. The two areas were distinct.

Mr B Mkhalipi (ANC) sought clarification on whether the Provincial Equitable Share (PES) and conditional grants had changed or improved conditions in relation to road infrastructure, either in construction or maintenance, in Provinces, as these had been expected to prioritise sector imperatives.  

Mr Khumalo indicated that the impact of the PES and conditional grants were not yet apparent. However, there was an indication that spending on road construction had declined by 5% and on road maintenance by 15%, in comparison to the previous fiscal year. However, it should be noted that the social cluster or sector seemed to be more organised in terms of service delivery, and this might give rise to some form of spending dislocation.

Ms R Mashigo (ANC) sought clarification on the broad definition of Learner Support Materials (LSM) and asked whether it included transport for children. She pointed out that if no transport was provided for  children to travel to school the vicious cycle of lack of accessibility for farm labourers would continue in rural areas.

Mr Khumalo indicated that FFC's research in provinces seemed to indicate a serious confusion as to who should be responsible for LSM. FFC was recommending that the Intergovernmental Fiscal Relation institution should investigate the matter further. He also indicated that school transport was currently being analysed, as it was a new category in the budget format, and there was currently no reliable data available.

Co-Chairperson Ms Mabe raised a concern in relation to the economic impact of the 2010 FIFA World Cup. She noted that if the cost of infrastructure was escalating, this had the potential to result in government re-arranging its priorities, and focusing on infrastructure investment to the detriment of other priorities. She also sought clarity on the FFC observations on benefits accruing to capital owners rather than labour. She wondered whether this would not undermine the government policies on job creation.

Dr Mabugu indicated that the issue on economic impact of the 2010 FIFA World Cup related to parliamentary oversight, and would involve ensuring that the benefits were spread across all sectors of the South African economy and communities. In terms of macroeconomic perspectives, it was not too bad to close the gap of overruns using government revenue because the overruns were driven by outside forces. If the overruns lay outside the variables of exchange rate and inflation, there would be cause for concern.

Dr Mabugu added that in any country, expenditure by government would always benefit capital owners, but it should also be noted that all households stood  to benefit, although the degree of beneficiation would differ. The structure of production in the South African economy would define the landscape of economic beneficiation.

Mr M Swart (DA) requested information on whether the provinces were developing a plan to improve the procurement procedures to ensure effective delivery of NSNP to rural schools.

Mr Khumalo indicated that the major challenges in provinces were the lack of internally built capacity and staff to manage the NSNP. This in turn led to institutional instability, even though there were clear legislative guidelines. The programme was managed by contractual staff, who were often uncertain about their future employment. 

Mr Z Kolweni (ANC, North West) raised a concern in relation to the classification of roads in provinces, since there was often confusion which sphere of government should take responsibility for maintaining roads. He shared with Members a worrisome situation indicating that communities did not benefit from government procurement due to procedural flaws, and said this state of affairs might undermine the good intentions of government.

Mr Khumalo indicated that the major delay in road management arose from  the fact that there was no classification system between provinces and local government. Once that issue was resolved there should be some progress in road management.

Mr Van Gass indicated that the FFC was recommending that there must be an institutionalisation of best practices, like project planning and budgeting methods, to ensure compliance to various government procedures.

Mr Sogoni commented that the recommendation by FFC on the Provincial Infrastructure Grant should be given more substance to avoid loopholes. He also sought the view of the FFC on the role that individual schools should play to ensure the sustainability of the NSNP at local level.

Mr Khumalo indicated that it was feasible to sustain the NSNP by individual schools through vegetable gardens, but that model had not been studied thoroughly. The provincial governments should in addition close the loopholes in the programme by investing more resources to stabilise the programme. The NSNP should also be seen as a partnership between schools and government.

Mr Botha stressed that the quality of housing in rural areas was appalling, and the housing delivery backlog was not assisted by having to demolish some of the houses built. The major problem was that Provinces did not report on some of the problems so that they could be resolved timeously.

Mr Jaya indicated that building poor quality houses could constitute a criminal offence and the construction companies that were involved should be apprehended. The Constitution provided clear guidelines to that effect.

Co-Chairperson Mr Ralane sought clarification on the responsibility of the 2010 FIFA World Cup legacy agency, its mandate, accountability and governance. He asked if the FFC considered the social impact of the 2010 FIFA World Cup.

Dr Mabugu indicated that the FFC had not given the 2010 FIFA World Cup legacy agency any particular thought, but the key principle that underpinned the recommendation was that the wealth of experience gained through hosting World Cup events should not be lost.

Co-Chairperson Mr Ralane proposed to the FFC that they should further investigate the following issues:

-The benefits that will be accrued by the second economy from the 2010 Fifa World Cup
-The sustainability model of NSNP that the Northern Cape is utilizing
-The road management strategies of various provinces

He also suggested that the FFC should compile comprehensive information of provinces that were or were not feeding children in schools, gather information on those schools that were without electricity and sanitation, and assist by defining the Learner Support Material, whose definition should be broadened.

Mr Ralane also indicated that the FFC was invaluable to the work of the Select Committee on Finance, and the Joint Budget Committee, and expressed his appreciation.

Dr Setai expressed his gratitude to the Committee for the opportunity to present, and indicated that FFC was re-examining its protocol so that the engagement with Parliament would be more clearly defined.

The meeting was adjourned.