Division of Revenue Amendment Bill: Negotiating Mandates

NCOP Appropriations

04 November 2010
Chairperson: Mr T Chaane (ANC, North West)
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Meeting Summary

The Committee considered negotiating mandates from the provinces. Eight provinces had submitted negotiating mandates. The one from the Free State was still outstanding. However, all nine provinces voted in favour of the Bill. There was discussion on the following topics: the increase of the Technical Recapitalisation Grant that was performing badly; the speeding up spending of these grants; the drought relief grant given to the Mossel Bay local municipality; the Provincial Equitable Share (PES) allocation formula which was ‘alive’ in that it was updated every year; the two types of conditional grants - supplementary grant used for infrastructure and the specific grant or Schedule 5 grant which were determined by the national department responsible for that grant. With regards to local government, National Treasury was committed to reviewing the local government equitable share formula. The Committee was pleased to hear this. The local government equitable share formula (LGES) was currently being reviewed and was much more complex than the PES formula because there were 283 municipalities as opposed to nine provinces.  Another important issue was that provinces had too much flexibility in terms of the allocation of money to municipalities. National Treasury wanted to curtail this by giving municipalities surety of the allocation. It wanted to assure municipalities of what they would be receiving so that they could link that to their budgets and provision of services such as water, sanitation and roads that were supportive of housing. It wanted to propose this for the 2011 Division of Revenue Bill after engagement with the relevant national departments and provinces.

Meeting report

The Chairperson had three questions he wanted the delegation from National Treasury to answer before the Members presented their mandates. Firstly, the Further Education and Training (FET) colleges had received an increase in their grant even though they had a very bad performance record in terms of spending. He wanted to know what was the rationale behind the grant increase to FET colleges. Secondly, he asked if National Treasury had a plan to assist provinces and municipalities in speeding up the process of quality spending of grants. Thirdly, with the municipal drought relief grant, could the Committee get an explanation for the allocation specific projects so that the Committee could monitor the projects going forward.

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

Eastern Cape
Mr S Mazosiwe (ANC, Eastern Cape) said that the Bill was supported by the Eastern Cape.

Free State
Mr B Mnguni (ANC, Free State) said that the Free State voted in favour of the Bill (the negotiating mandate documents had not yet being received).

Northern Cape
Mr C de Beer (ANC, Northern Cape) said that the Northern Cape voted in favour of the Bill.

Kwazulu-Natal
Mr B Mnguni (ANC, Free State) said that Kwazulu-Natal voted in favour of the Bill.

Mpumalanga
The Chairperson requested Mr Makhubela to present Mpumalanga’s negotiating mandate.

Mr M Makhubela (COPE, Limpopo) said that Mpumalanga voted in favour of the Bill.

North West Province
The Chairperson said that North West province voted in favour of the Bill but there were concerns about the Provincial Equitable Share (PES) formula, the allocation of budgets to municipalities and the conditional grants allocated to North West departments.

Gauteng
The Chairperson requested Mr Mazosiwe to present Gauteng’s negotiating mandate.

Mr S Mazosiwe (ANC, Eastern Cape) said that Gauteng voted in favour of the Bill.

The Chairperson commented that even though the Province voted in favour it had raised concerns over the time given.

Limpopo
The Chairperson said that Limpopo voted in favour of the Bill but the Committee had not received the negotiating mandate document yet. (The negotiating mandate documents arrived later in the meeting)

Western Cape
Mr J Bekker (DA, Western Cape) said that the Western Cape voted in favour of the Bill but the Committee had not received the negotiating mandate document yet. (The negotiating mandate documents arrived later in the meeting)

The Chairperson presented the negotiating mandates from the Western Cape which had an amendment added (see document).

The Chairperson confirmed all nine provinces voted in favour of the Bill except for those few concerns and then asked National Treasury to give their comments and answer his questions posed earlier.

Discussion
In response to the Chairperson’s first question on the increase in the grants for the FET colleges, Ms Wendy Fanoe, Chief Director: Intergovernmental Policy, National Treasury replied that it was not the FET grant that was performing badly but the Technical Recapitalisation grant. This was not unique to any new grant. The grant needed to pick up speed and after three years it would mature and perform better. The reason for the increase in the grant was to cater for the FET staff who had received an increase in their salaries.

In response to the Chairperson’s second question on the speeding up of spending, Ms Fanoe replied that there were in-year challenges that existed as well as the fact that costs increased because better services had to be provided. The way grants were spent was an important issue and attention needed to be given to this. The grant money was received by the national transferring officer. If the money was a conditional grant and it was a basic education grant then the provincial Department of Basic Education must actually get the money. She gave an example: the Department of Basic Education had a gap in monitoring. The department was therefore increasing its capacity to address the problem of monitoring.

In response to the Chairperson’s last question on drought relief grant, Ms Fanoe replied that National Treasury got the request from the Department of Cooperative Governance and Traditional Affairs (COGTA). COGTA then followed a process and its request was submitted to the Disaster Management Committee. This committee only met when the need arose. With regards to the Local Government Disaster Management grant, Ms Fanoe said the money only went to one municipality which was the Mossel Bay local municipality. The municipality received R92 million for drought relief and this was linked to salination plants that need to be put in place. The municipality also used its own money to top it up. It was not the only municipality that received the grant. Last year other municipalities in the area also received funding for disaster relief.

Mr Jonathan Carter, Director: Provincial Policy Planning, National Treasury, explained the Provincial Disaster Management (PDM) grant. There were two PDM grants. One grant for drought relief  in the Western Cape, specifically in the Southern Cape which was used to feed animals and the other in Kwazulu-Natal (KZN) for the repairing and rehabilitation of roads damaged by floods. KZN received R214 million for this.

On the matter raised by North West in its mandate, Ms Fanoe replied that it was a valid point that the PES could not be used as the only allocation method because it was not. There was also the conditional grant that could be used as an allocation source. However, the PES was the main source of allocation for provinces and local government. The North West had being particularly vocal in the budget forums and committees because it had being hit twice by redemarcation. North West complained that it was losing too much money and Gauteng complained that it was not receiving enough money. The population that moved from one province to another would be allocated in the formula. The PES formula was quite alive in that it was updated every year. With regards to conditional grants there were two types: the supplementary grant that was used for infrastructure and the specific or Schedule 5 grant that was specifically linked and funded through the conditional grant. Those allocations were determined by the national department responsible for that grant. If there were any concerns about this, one needed to look at the spending trends and processes put in place by the national transferring officer to ensure that the allocations were allocated perfectly. The problem was that there was also not an infinite pool of money available for distribution. This was an unfortunate reality and provinces often complained that they did not receive enough money. This was exacerbated by the demarcation problem faced by the North West Province.

With regards to local government, Ms Fanoe replied that the local government equitable share formula (LGES) was currently being reviewed. The local government share formula was much more complex than the PES formula because there were 283 municipalities as opposed to nine provinces. Some metros could receive up to R30 billion and some could get much less. National Treasury needed to ensure that the municipalities were correctly funded and had determined two areas where attention needed to be given. The first area was that poorly resourced municipalities needed to be funded better. National Treasury had acknowledged that the municipalities own revenue was limited and that they were largely reliant on funding from the fiscus. These municipalities needed to top-up own revenue as well as build its capacity. This was also important from an accountability aspect. The second area that was a challenge and that placed a strain on the budget were metros and the larger urban areas. It was a fallacy to think that they had huge sums of money. There was huge inward migration into these areas that also placed additional strain on the budget and this inward migration happened three times faster than into other areas. In the longer term review, the National Treasury would ensure that all municipalities would be appropriately funded and would explore what data could be used so that they could be up to date.

Mr S Mazosiwe (ANC, Limpopo) commented that the principle of the amendment needed to be dealt with.

Ms Fanoe replied that the issue that was important was the Division of Revenue Amendment Bill and that it needed discussion with the relevant stakeholders. One of the reasons why the clause 1 was put in place was because housing which was actually a provincial function could also be done by municipalities. The municipalities were not sure of the allocation they would be receiving from the provinces and this placed them in a very precarious position. Sometimes the municipalities receive the money late in the year and they did not get real clarity on the situation. Provinces had too much flexibility in terms of the allocation for the housing function and that was exactly what National Treasury wanted to curtail and give municipalities surety of the allocation. National Treasury wanted to assure municipalities of what they would be receiving so that the municipalities could link that to their budgets and services that they provide such as water, sanitation and roads (that were supportive of housing). National Treasury wanted to propose this for the 2011 Division of Revenue Bill after engagement with the relevant national departments and provinces.

The Chairperson commented that there would be final discussion on the Division of Revenue Amendment Bill and the process would only be finalised the following week when the Committee received the final mandates from the provinces. He thanked the delegation from National Treasury for their contribution and input and also thanked the Members for their comments and input.

The meeting was adjourned.



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