Financial & Fiscal Commission recommendations on Division of Revenue Bill 2011/12: SALGA, Departments of Rural Development & Land Reform, and of Agriculture, Forestry and Fisheries responses

NCOP Finance

17 August 2010
Chairperson: Mr C de Beer (ANC, Northern Cape)
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Meeting Summary

The Financial and Fiscal Commission’s (FFC) recommendations on the Division of Revenue Bill 2011/12 (the Bill) had been presented, and three government entities provided their comment on these recommendations. The South African Local Government Association (SALGA) supported the recommendations on the introduction and termination of conditional grants, which would address some of the challenges that municipalities were experiencing on conditional grant management. SALGA also agreed that improvements to the institutional support allocations would enable smaller municipalities to sustain their administrative and governance operations. Finally, SALGA suggested that there was a need to monitor the rollout of any new transport initiatives, whether these were community based or mainstream services. Members voiced their displeasure that SALGA was not occupying its seat on the National Council of Provinces, since many of the issues could have been adequately addressed there. The FFC also commented that it had been difficult to interact with SALGA over the previous four years. Members asked why SALGA was supporting garnishee orders despite the plethora of administrative systems across the municipalities, and asked why SALGA was not consolidating the smaller municipalities.

The Department of Rural Development and Land Reform noted that the economic crisis had resulted in funding being moved across from its rural development programmes to the land restitution programmes. Restitution was clouded with many court orders, but land transfer would be receiving more focus. This Department agreed to the reform of the revenue-raising component, which would require municipalities to generate their own income, but was not sure how this would be done. It suggested that alignment of budgets and monitoring could be made much easier if all spheres of government aligned their financial year ends. The Department also agreed with recommendations on public transport and felt that these should be extended also to rural areas. Members asked whether the fraudulent land reform claims would be curbed, asked for clarity on the moving of funding, and asked how the Department would ensure that its programmes were not compromised by cutting back on expenditure, and what areas would be treated as block grants.

The Department of Agriculture, Forestry and Fisheries (DAFF) presented a summary of the allocations to conditional grants over the Medium Term Economic Framework. It noted that the National Assessment Panel would oversee or monitor the budget allocation of the provinces for projects that the provinces would undertake. It also explained its proposal to consolidate certain funds into a “One Stop Shop” to prevent applicants having to submit numerous applications for different funding. DAFF proposed that the withholding of funding for less than 120 days could be delegated to the national transferring body, to eliminate the long processes currently followed. It also proposed that the Extension Recovery Plan and CASP should be converted to Schedule 5 Grants, for better control. Members commented that the extension officers were often not reaching the communities where they should be working, asked what mechanisms were in place to make sure that the funds of the Department reached all provinces, and commented on certain brands of tractors having been purchased, without spares and mechanical expertise being readily available. Members also wanted to know what monitoring was being done, and called for a further explanation on the One Stop Shop.

Meeting report

Financial and Fiscal Commission (FFC) comments on Division of Revenue Bill 2011/12:
South African Local Government Association (SALGA) comments

Ms Sophy Molokoane, Deputy Chairperson: South African Local Government Association (SALGA), stated that the comments from SALGA related to Chapters 3 and 4 of the Division of Revenue Bill (the Bill), which dealt with matters affecting local government functions. She noted that the Financial and Fiscal Commission (FFC) recommendations regarding the improvement of the performance and effectiveness of fiscal transfers in the intergovernmental systems, and its recommendations on the introduction and termination of conditional grants were supported. These measures would address some of the challenges that municipalities were experiencing regarding conditional grant management. In addition to the provisions for a systematic approach to the design and planning of grants, clear guidelines should be developed on how these provisions should be factored into the business plans of transferring National departments and municipalities, as required by the Division of Revenue Act (DORA).

SALGA noted that the current grant frameworks contained indicators and measures such as outputs achieved. However, there was no reporting on these non-financial measures. A holistic view should be taken towards fiscal support to a particular municipality, to ensure that the various grants operated as a system that would achieve certain clearly defined objectives for the development of municipalities.

SALGA also welcomed the recommendations on local government revenue improvement strategies and fiscal distress,. Revenue collection should become one of the most important goals for a municipality. The simple principle that people should pay for what they consumed should be clearly communicated to all municipal customers. Guidelines should be provided for the development of municipal revenue improvement plans. Municipal financial systems should be audited to address challenges in billing systems. She noted that, for example, municipalities across the Free State were using fourteen different financial systems.

SALGA also agreed with comments aimed at reforming the local government share formula.  It confirmed that improving the institutional support allocations would enable smaller municipalities to sustain their administrative and governance operations. The FFC should provide possible solutions on how this could be achieved through the equitable share formula. However, it was not clear what the recommendation meant for small poorer municipalities, in relation to the rest of the municipalities, since all were funded from the same pot of funds.

Ms Molokoane was concerned that the FFC’s recommendations over the last few years had not been followed up, such as its 2006 recommendations on the development component and the 2010 recommendations on including road maintenance as part of the formula.

Ms Molokoane then referred to the regionalising of municipal services, and said that SALGA recommended that the Electricity Distribution Industry Holdings (EDI) and the Department of Energy (DOE) were better placed to take up this debate, especially because the EDI had been undertaking an analysis that informed its proposals on the Regional Electricity Distribution bodies (REDs) to date. The financial and fiscal implications of the arguments in this section of the report were not explicit. However, SALGA would like to state that from a local government perspective, electricity distribution income was a key contributor to municipal revenue, without which municipalities would not be able to meet their obligations.

SALGA lastly wished to comment on the public transport recommendations. It was of the view that there was a need to monitor the rollout of any new transport initiatives, whether these were community based or mainstream services, such as Bus Rapid Transport (BRT) in municipalities. SALGA would like to see the focus on public transport to cover rural transport challenges. The Rural Transport Infrastructure Grant was now in its second year of implementation in selected areas, and government should provide clarity on how it would roll out the programme to other rural areas.

Mr M Makhubela (COPE) commented he would interact with SALGA when it occupied its seat in the NCOP.

Mr L Mashile (ANC) concurred with Mr Makhubela, saying SALGA would have had an ample opportunity to interact with the FFC if it had occupied its seat in the NCOP. Some of these issues now being raised could have been discussed and attended to long time ago.

Ms Molokoane explained that participation in the NCOP had been raised with the Department of Cooperative Governance and Traditional Affairs (COGTA). Most councillors were doing full-time work and had very little time to attend NCOP meetings. A submission was made to the Minister of Cooperative Governance and Traditional Affairs that SALGA should be permitted to have a full-time representative in the NCOP, rather than having people attending on a part-time basis. This issue would be tabled again. The NCOP Chairperson had also been approached and had been asked to give SALGA a year plan or programme, so that it could make proper arrangements for representation.

Mr Bongani Khumalo, Deputy Chairperson, FFC, mentioned it had been difficult for FFC to interact with SALGA over the past four years. This meant that the FFC had ended up meeting with SALGA in different forums, with documents that actually deviated from the FFC mandates.

Mr Mashile asked why SALGA was supporting garnishee orders while it had municipalities with different administration systems.

Ms Molokoane responded that there were areas where municipalities would undertake data cleansing where there were no billings. SALGA would like to have a private business practice to chase billing or recover costs.

Mr R Lees (DA), noted that municipalities had been complaining about the problems of capacity. He enquired why SALGA was not consolidating smaller municipalities together, instead of giving more money to small, unsustainable municipalities.

Ms Molokoane replied that demarcation boards defined municipalities. Municipalities might get the same grant for providing a service, but the basic cost was not always the same. For example, a similar project being done in Johannesburg and Engcobo would prove more expensive when done in Engcobo since Engcobo was a remoter area, whilst Johannesburg could source what it needed more cheaply.

Mr Mayul Magawer, SALGA representative for Economic Development and Planning, added that in regard to capacity there were also political changes and system problems within municipalities. Some municipalities had not cleaned up their databases and addresses some twenty years out of date were still recorded.

Department of Rural Development and Land Reform (DRDLR) comments
Mr Mdu Shabane, Deputy Director-General, Department of Rural Development and Land Reform, noted that the economic crisis meant that the budget had to be reprioritised, which had resulted in certain areas of service delivery being overlooked while greater precedence was given to others.  

For his Department (DRDLR or the Department) the area of restitution was of major concern. The main challenge facing DRDLR related to taking strategic decision on land transfer, because court orders were driving the process. He noted there had been under-funding in this area. Another challenge was that the media reports had stated that the Government was exposed to R3.5 billion of claims. In an attempt to deal with this, R2 billion worth of money originally budgeted for land reform was transferred to restitution, which was the area largely driven by court orders.  This had a huge impact on the land reform programme of the Department.

The DRDLR then commented on the FFC recommendations on effective intergovernmental fiscal systems. The DRDLR agreed to the reform of the revenue-raising component, which would require municipalities to generate their own income. However, the Department was not sure how national departments could generate their own revenue. Certainly there were some that might be able to do so. He emphasised that monitoring would be made so much easier if financial year-ends of certain departments matched the financial year ends of municipalities. This would make the alignment of budgets easier.

With regard to social assistance reforms, he mentioned that budget of DRDLR was reprioritised to fight poverty, because the economic crisis affected the needy. This was done to ensure money was pumped into where it was needed most, in order to make an impact.

DRDLR agreed with the recommendations on public transport, which would go a long way to alleviating traffic congestion and reducing the Road Accident Fund bill. It was also felt these initiatives should be extended to the rural areas as well, instead of confining them to urban areas only.

DRDLR indicated that the fiscal allocation to agriculture would be increased by 10%, in line with the Maputo Declaration of 2003. This would enable the sector to be able to achieve its 6% annual growth as also set out in the 2003 Maputo Declaration.

Mr R Lees (DA) cited a widespread phenomenon in Ladysmith with land reform beneficiaries, and asked if the issue of land reform beneficiaries who were not supposed to benefit from the programme would be curbed throughout the country. He questioned whether, with an amount of R2 billion, the Department would be able to meet the land reform demands.

Mr Shabane replied that inspectors were appointed in Ladysmith and throughout Kwazulu-Natal. The same had been done in the Western Cape. He conceded that running this on a national basis would be costly, but measures were in place to address the problems.

Mr Shabane explained that the R2 billion had been moved across from the budget for land reform, to address urgent issues in land restitution. The initial budget was R3,5 billion. The R1,1 billion allocated to restitution proved to be inadequate, which was the reason for the transfer. National Treasury was aware of this. He noted that economic challenges had accumulated, over the years.

Mr Mashile said he understood fiscal consolidation as cutting funding on certain projects, and therefore wanted to enquire how the Department would ensure that its programmes would not be compromised by the “belt-tightening” contained in the FFC recommendations. Secondly, he enquired what areas within the Department were going to be treated as block grants noting that the FFC had made recommendations regarding block grants in education and health.

Mr Shabane replied that issues around block grants and fiscal consolidation could be answered in the context of the outcomes-approach adopted by the government. For example, Outcome 7 has five delivery areas, and was multi-sectoral. A delivery forum governed each output. For example, if a municipality, in order to achieve Outcome 7, needed a clinic, then the Department of Health, in terms of delivery agreements, must respond. Looking at available resources, his Department, by implication, had the possibility of tapping into any department for resources from Outcome 7. This might be difficult to do at national level, but at provincial level it might be very important to give consideration to doing this. Fiscal consolidation might be institutional. There were institutions that were more or less doing the same thing. As a result, a proposal was formulated to consolidate a few departments to speed up rural development. He thought that fiscal consolidation would be a great idea to speed up service delivery.

Mr Mashile commented that it would be worthwhile for this Department to thoroughly consider the FFC recommendations, so that it could see what the problems were, and where allocations should go.

Mr Shabane also noted that, in regard to the FFC recommendations on transport, a bill had been presented by this Department to Cabinet, and the Department of Transport had responded positively, agreeing that there should be an interface between rural and urban areas. Transport was seen as a key matter. It was also noted that people located in areas with Agri-villages would be staying in those villages, so transport was also a key factor that would need urgent consideration.

Department of Agriculture Forestry and Fisheries (DAFF) comments
Mr Peter Thabethe, Acting Director-General, Department of Agriculture, Forestry and Fisheries, commented on the conditional grants over the Medium Term Economic Framework (MTEF) and said that his Department (DAFF or the Department) had looked into the 2010/11, 2011/12 and 2012/13 periods.

Mr Thabethe noted that funding had to be made available to the provinces under the Division of Revenue Act. An amount of R862 million had been allocated for the Comprehensive Agricultural Support Project (CASP), which included a conditional grant entitled the Extension Recovery Plan (ERP). This would rise to R979 million in 2011/12 and R1 billion in the 2012/13 financial years.

An allocation of R200 million, rising to R400 million and then R420 million in the following financial years, had been made for Ilima/Letsema.

The Land Care Programme currently was receiving R54 million, and this would rise to R57 million and R60 million in the following years.

The Agricultural Training Programme received nothing for this financial year but would benefit in the following two years.

Thus, current allocations to provinces were standing at R1,1 billion. The National Assessment Panel would oversee or monitor the budget allocation of the provinces for projects that the provinces would undertake. Changes to programmes by provinces would have to be reported to the National Assessment Panel.

The DAFF was proposing that funds that did not complement each other should be brought together into a “One Stop Shop” which would avoid giving funding piecemeal. An applicant would not submit different applications for different programmes, but would forward one application covering many programmes or projects.

DAFF then responded to the specific recommendations of the FFC. DAFF proposed that the withholding of funds for less than 120 days should be delegated to the national transferring officer or department for a final decision, so as to expedite the compliance of the receiving officer. Any decision taken after receiving representations from provinces would therefore be communicated to National Treasury. This would eliminate the long administrative processes that currently were mitigating against speedy decision-making when Land Care grants to provinces had been withheld. The Department further proposed that the Extension Recovery Plan and CASP should be converted to Schedule 5 Grants, for better control.

Mr Mashile commented that DAFF had made a mistake in giving cars to extension officers instead of bakkies, with the result that these extension officers have started to do their work via cellphones, because their cars could not reach the intended deep rural areas.

Mr Thabethe elaborated that there had been challenges around having extension officers on the ground. There were few people on the ground to assist in land reform programmes and beneficiaries. Most of the extension officers that the Department inherited were from the homeland areas but presently, the Department was recruiting more people. He conceded that the Department had become aware that the extension officers were not always reaching the people, and so an indaba was held with them to improve their service, image, visibility and to have a credible extension system.

Mr Mashile asked what mechanisms were in place to make sure that the funds of the Department reached all provinces, as he was aware that provinces were making business plans and submitting them to the National Department, which seemed to suggest that provinces who were able to produce better plans would get more funding.

Mr Thabethe refuted the notion that this would happen. He said that monies were distributed to the provinces. Each province was told of its allocation, but it had to give a written presentation to the Department as to how it planned to use its budget. Provinces were not given the full amount in one lump sum, but were paid in tranches. If a province underperformed or underspent, it would not get funding for the next quarter or phase, but would be told to re-direct it. He noted that some provinces did have challenges, and Eastern Cape and North West did not spend their funding. In those circumstances, the Department would not continue to transfer funds to them, according to the stipulations of DORA.

The Chairperson asked what monitoring the Department was doing on the provinces.

Mr Thabethe explained that this challenge had been reported to National Treasury, and was tied in with reporting. Every quarter, the Department requested progress reports from provinces. If the project failed to start, then the provincial team would not be able to report to the Department, because the provinces would still be working on procurement. Matters were worsened if there were changes in the provincial department, and projects had to be re-started from scratch. It would be better if the Department was allowed to withhold money in order to encourage the speed-up of developments.

Mr Mashile stated that in Mpumalanga certain farmers and communities were given tractors yet no one could fix them when they were faulty, and there were apparently no available spare parts.

Mr Thabethe said that the tractor projects were started by the provinces themselves. The Department provided support in terms of mechanisation. The Department was aware that the provinces had bought certain brands, using their own funds. The engineering unit of the Department had been dispatched to provinces to advise on tractors and equipment that needed to be bought, specifying those which could be serviced locally, rather than having to be sent far away from where they were being used. The tractors would be purchased with a service plan. Tractors that were problematic would have to be disposed of. That was the advice given to the provincial departments.

Mr Makhubela commented that public servants should be loyal to government programmes and spend the money that was allocated in a useful way, so as to speed up service delivery. He asked the Department to explain, in simple terms, what the One Stop Shop was.

Ms Elda Mosia, Chief Director: CASP, DAFF, explained that the One Stop Shop had to do with grants that were not talking to each other, and that the Department believed should rather be consolidated. There was technical support within the One Stop Shop, to enable a tracking of the money. The other problem that the provinces had raised was that they were not given the necessary time to focus on spending the money, which resulted in the low uptake on grants or under-spending. They had pleaded for enough time, even if it meant rolling over funds to the next year, so that they could deliver without being subjected to too much pressure either from the National Department or Parliament. That had been the thinking behind consolidating the money.

The meeting was adjourned.


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