Division of Revenue Bill: Consideration of negotiating mandates

NCOP Appropriations

16 March 2010
Chairperson: Mr T Chaane (ANC, North West)
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Meeting Summary

All nine provinces had submitted negotiating mandates and were unanimous in their acceptance of the Bill. Certain provinces did however include comment over issues. A great deal of discussion ensued over the equitable share allocation formula. Concerns were raised that population figures played a part in the determination of a province’s equitable share. The population figures were based on outdated census figures. Members felt that there were provinces which were scarcely populated but were huge geographically, which were disadvantaged by the current calculations. The smaller the population of the province the smaller the equitable share of the province even though the developmental need was greater. The Committee was glad to hear that the equitable share formula was to be reviewed. Other issues included the plight of struggling municipalities and their viability given that many had no revenue base to speak of. The accessibility of conditional grants and there proper use by municipalities was another issue raised.

Meeting report


At the commencement of the meeting the Committee accepted the apologies of Mr D Bloem (COPE, FS), Mr M Zulu (IFP, KZN) and Mr J Gunda (ID, Northern Cape) for not being able to attend the meeting.
The Chairperson placed a Draft Committee Report on the agenda. It would be a reflection of the work that the Committee had been engaged in. It would be finalised whilst the Committee was on its oversight visit in Limpopo. 

Division of Revenue Bill: Provincial Negotiating Mandates
The Chairperson invited the provinces to present their negotiating mandates.

Mr B Mashile (ANC, Mpumalanga) asked whether the mandates should be submitted through the provincial committees or by the speaker of the provincial legislatures. The mandates submitted were mainly sent through the provincial committees.

The Chairperson said that the prescribed format required it to be signed by the speaker of a provincial legislature. In practice provincial committees submit initial mandates; final mandates had to be signed by the speaker of the provincial legislature. The final mandate would thus be in the prescribed manner.

Mr Mashile presented the negotiating mandate. The mandate was to vote in favour of the Bill taking into considerations inputs that were made by the Provincial Committee. Sufficient time should be allowed to solicit views on Section 76 bills referred to Legislatures, strict control measures should be implemented to assist poor performing municipalities in-year and the criteria for the allocation of amounts allocated to the province in terms of Human Settlements Development Grant, the HIV and AIDS Grant and the Comprehensive HIV and AIDS Grant should be revisited. These were some of the inputs made.

Free State
Mr B Mnguni (ANC, FS) noted that the Free State voted in favour of the Bill without amendments.
Western Cape
Mr T Harris (DA, Western Cape) said that the Bill was supported but there was the concern that the process of bringing the equitable allocation into line with in-migration into provinces should be expedited to enhance service delivery.

The Chairperson requested Mr Mnguni to present Kwazulu-Natal’s negotiating mandate.

Mr Mnguni read the mandate and KZN voted in favour of the Bill.

North West Province
The Chairperson presented the mandate which was a vote in favour of the Bill whilst taking into consideration that the demarcation of Merafong and Kudumane municipalities had affected the budget of the province substantially. In addition the formula that the Financial & Fiscal Commission used to determine the population and budget allocation of certain municipalities was a disadvantage to the North West as it was a vast and rural province. The population may be low demographically but there were large areas to develop.

Northern Cape
Mr C De Beer (ANC, NC) presented the mandate which was a vote in favour of the Bill. An absence of an allocation for the Municipal Infrastructure Grant (MIG) for the province, the appalling state of the province’s roads which needed serious attention and the insufficient and small budget allocation to the province were some issues that needed to be addressed.

Eastern Cape
Mr M Dimaza (ANC, EC) noted that the mandate from the province was a vote in favour of the Bill. There were matters raised for consideration. Some of the issues raised were that there was a need to review the formula for the allocation of the equitable share and the statistics derived from the 2001 census was outdated and was a disadvantage in the allocation of the equitable share. In addition the cross-boundary issues on the rural electrification programme by Eskom needed to be taken into consideration when allocations were made to provinces. Allocations for drought relief did not take into consideration that some municipalities had been declared disaster areas.

The Chairperson requested Mr Mashile to present Limpopo’s mandate. Mr Mashile noted that the province voted in favour of the Bill albeit making recommendations. Government should consider allocating more funding for infrastructure and rural development in the province, a Water and Sanitation Grant should be established, the formula for the equitable share should be reviewed as foreigners like Zimbabweans were part of the statistics of the province and census should be held every 5 years as opposed to every 10 years which would ensure that the statistics used would be more accurate.

Mr S Montshitsi (ANC, Gauteng) said that the province voted in favour of the Bill but made recommendations nevertheless. The provincial equitable share formula should respond to the socio-economic challenges and the growing populace of the province and should follow the costed norms approach. The provincial equitable share was mainly driven by population trends which was derived from census statistics which were outdated. The result was that the provincial equitable share distribution under allocated in provinces like Gauteng that experienced migration and in migration.

For greater detail please refer to the attached documents.

The Chairperson opened the floor to members to clarify any issues with National Treasury.

Mr Harris said that three out of the nine provinces had issues about data. He noted them to be Western Cape, Eastern Cape and Limpopo. The concern was about outdated data. National Treasury was asked to give the Committee a breakdown of the provincial equitable share relating to the five components. From which year did the data come from relating to the five components?

Ms Wendy Fanoe, Chief Director: Local Government and Finance Policy, noted that many of the issues raised had a common theme. A distinction needed to be made between a provincial equitable share and a local government equitable share. To ensure credibility the statistics obtained from Statistics SA had to be credible and verifiable. Where surveys were done a number of samples of data was taken. Data from provinces were robust hence many samples were taken. The census was done every ten years. There were 283 municipalities in all. Surveys became large and hence doing a census was needed. She conceded that the issue needed addressing. Relating to provincial equitable share she referred to Page 67 of the Bill, Annexure W1. The oldest data that was used was from 2007 and it was the gross domestic product per region. Most of the other data used was from 2008 and 2009. For the municipal equitable share the 2001 census data was used. The reason why 2009 data was not available was surveys were not always done.

Mr Montshitsi referred to the Limpopo document on page 3 and said that MIGs was being used for water and sanitation. It was not being used for the building of roads. Was it not the duty of provinces to ensure that municipalities used MIGs for what it was intended?

Mr Mashile explained referring to MIGs that it was up to the municipalities to apply for the funds for specific programmes. They might apply for certain things and not for others. Municipalities tended not to apply for difficult things where it involved a huge administrative burden such as the drafting of complex business plans.

Mr De Beer, referring to the monitoring of conditional grants by municipalities, said that in December 2009 it came to light that municipalities were not spending conditional grants. How did National Treasury deal with the matter? He asked what the formula was for the calculation of allocations for gravel roads. Gravel roads in the Northern Cape were in a bad condition and started affecting service delivery. It slowed down the police and ambulances reaction times. The issue of electricity as highlighted by the Eastern Cape was important. It affected the North West and Northern Cape provinces. Eskom needed to explain cross border electricity issues.

Ms Fanoe pointed out that the Western Cape had said that the provincial equitable share formula was unfair and that it was under-funded. The Limpopo and Eastern Cape were both rural and had their own arguments. The equitable share had a rural and urban bias. The issues raised were noted. There was to be a full scale equitable share formula review. It was underway. There were specific reasons why the census was now done every ten years as opposed to every five years. It was simply too expensive to do it every five years. The implications were huge for the local government equitable share formula. The formulas were much more intricate than using only population figures. The underfunding of smaller municipalities was an issue that needed addressing. They received less funding because population figures were used. The review of the local government equitable share formula was taking place.

She perused the comments contained in the negotiating mandates of provinces and spoke to them if they were within her domain. Some of the issues raised by some of the provinces had been covered before and would not be repeated.

Ms Fanoe noted that assistance to poorly performing municipalities was an issue raised by the Select and Portfolio Committees. It was being discussed. She referred to the Conditional Grant Framework for criteria allocations for free grants. Referring to HIV-AIDS and Education, all provinces were treated in the same manner. The HIV-AIDS Grant criteria did speak to needs. There were different types of grants. A Schedule 4 grant was a supplementary allocation and a Schedule 5 grant was a specific purpose grant. 
North West
Ms Fanoe said that cross boundaries did impact upon the budget of a province.

Northern Cape
Ms Fanoe stated that there were two types of capacity support for conditional grants. The first was where the national department determined the conditional grant to provinces. An example was school nutrition. The province must handle and administer it. It was a provincial function. The second was where a conditional grant was made available to municipalities and allocations wished to be made to provinces. The condition of provincial roads was an issue being addressed. Maintenance and the required budgets had been discussed. She said that R49 billion had been earmarked for it over the next three years.

Eastern Cape
Ms Fanoe said that disasters could be classified as municipal, provincial or national. If there was a national disaster, there would be a very specific disaster management process.

Ms Fanoe said that perhaps government should consider increasing funding. The equitable share did have a rural component. Conditional grants did take into account backlogs. Agriculture and rural development should be given greater priority. The issue not only revolved around funding but also around spending.
Relating to water and sanitation grants, the MIG did have a water and sanitation component. The greater part of the MIG went towards water and sanitation. It was the municipality’s choice as to how it intended to spend funds. Putting norms and standards in place on how they should spend was difficult as municipalities were different. The focus should be on strengthening the Integrated Development Plan.

The Chairperson asked how did the equitable share formula at provincial and local level impact upon the migration of, for example, foreigners into a province and also the internal migration of persons between provinces.

Ms Fanoe replied that figures for internal migration between provinces would be available. The time lag was short and it would be reflected next year. The survey would pick up the migration of foreigners and the figures would be reflected next year.

Mr Mashile said that it was simply incorrect that funds were allocated taking into consideration population figures in a province. Mpumalanga was a huge province but it did not have a high concentration of people. The Northern Cape had the same problem. The result was small amounts of funding because population figures were small. The rationale currently being used had to be worked on. He gave an example of the laying of pipelines between villages that were far apart and the huge cost that was involved.

Ms Famoe responded that a regional bulk infrastructure grant had been introduced. Cross cutting bulk infrastructure was not specific to a municipality. The MIG was complemented by these other types of grants. Three years ago a minimum had been set for MIGs. It was R5 million.

Mr Montshitsi said that National Treasury worked with the Chief Financial Officers of municipalities to train them. Many of them did not implement what had been taught to them by National Treasury. He asked whether it was not possible for National Treasury to run the finances of troubled municipalities whilst contingency plans were being put in place. What would it take in terms of legislation for National Treasury to take over the financial running of ailing municipalities?

Ms Fanoe replied that there was a legal provision for it. Section 139 of the Constitution would be a good starting point. A great deal of approval was required. There were also time limits to consider. It was an extreme option but more watered down options were available. Agreements with municipalities could rather be entered into.

Mr Mashile reiterated earlier concerns about population figures being used to determine equitable share allocations. He wished to emphasise that the rurality of certain areas aggravated the problem. Rural areas were more vulnerable than urban areas.

Ms Fanoe said that the issue was being looked into and the equitable share formula was being reviewed.

The Chairperson said that it was evident that there were issues that would have to be reflected in the Committee’s final report to the House. The involvement of provinces in the review processes of the equitable share, the plight of municipalities who lack a revenue base and information about conditional grants (and procedures to follow to access them by municipalities) were issues that needed highlighting. He added that some municipalities were using conditional grants for purposes for which they were not intended.

The Chairperson said that members had the previous day been provided with a draft report on the Committee’s work. He suggested that members read through the report and forward written submissions to the Committee Secretary. The submissions would be included in the second draft of the report which would be considered by the Committee whilst members were in Limpopo. A suggestion was made that submissions be handed in by Friday, 19 March 2010. It would allow the Committee Secretary to have the second draft report ready by Monday, 21 March 2010. The Chairperson said that the Committee would consequently meet on Tuesday, 22 March 2010.

The Chairperson’s suggestion was accepted.

Mr S Mazosiwe (ANC, EC) said that members were not all staying at the same place in Limpopo. There needed to be co-ordination for members to be able to convene for the meeting on Tuesday, 22 March 2010.

The Chairperson stated that arrangements for the meeting had been made and that it was on the Committee Programme.

Mr De Beer wished to bring it to the Committee’s attention that some provincial departments did not always pay municipalities what was owed to them. In his province, the Northern Cape, the provincial department of health owed a municipality R104 000.

Mr De Beer said that a summit on local government was to be held in the Northern Cape in April 2010. National Government would be invited and the intention was to discuss the issue of allocations. The Demarcation Board was also looking at the financial viability of municipalities in terms of demarcations that had taken place.

The Chairperson said that the provinces would be notified about the outcome of the present meeting. Provinces would be required through their provincial speakers to forward their final mandates to the Committee so that these could be considered on Tuesday, 22 March 2010.

The meeting was adjourned.


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