Municipal Finance Management Bill: hearings; Social Grants Appropriation Bill; Burundi Protection Support Appropriation Bill: br

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Finance Standing Committee

12 March 2002
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Meeting Summary

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Meeting report

FINANCE PORTFOLIO COMMITTEE
13 March 2002
SOCIAL GRANTS APPROPRIATION BILL: BRIEFING AND FORMAL CONSIDERATION
BURUNDI PROTECTION SUPPORT APPROPRIATION BILL: BRIEFING AND FORMAL CONSIDERATION; MUNICIPAL FINANCE MANAGEMENT BILL: HEARINGS

Chairperson: Ms Hogan (ANC)

Relevant documents:
Social Grants Appropriation Bill, 2002 (Appendix 1)
Explanatory Memorandum to Social Grants Appropriation Bill, 2002 (Appendix 2)
Minister's speech in the house on the Social Grants Appropriation Bill, 2002 (Appendix3)
Burundi Protection Support Appropriation Bill, 2002 (Appendix 4)
Explanatory Memorandum to Burundi Protection Support Appropriation Bill, 2002 (Appendix 5)
Minister's Speech in the house on the Burundi Protection Support Appropriation Bill, 2002 (Appendix 6)
Municipal Finance Management Bill [B1 - 2002]
Submission by Western Cape Local Government Organisation (Appendix 7)

SUMMARY
The Committee was briefed on both Bills. The formal deliberations were concluded and the Bills were passed.
WECLOGO and the City of Cape Town recognises the importance of the Bill to improve transparency and accountability in respect of local government financial management. It was however submitted that the bill goes to far and undermines the autonomy of local government.
The Municipal Infrastructure Investment Unit submitted that the Bill is a positive step forward for efficient and responsible local government financial management but suggest two changes to allow for the municipalities to provide security and guarantees to ensure investment.

The deliberations on the bill will continue after recess at the end of April 2002.

MINUTES
Social Grants Appropriation Bill, 2002
Mr Donaldson, DDG in Treasury's Budget Office and Mr Kruger, Chief Director in the Budget Office briefed the Committee.

The Bill is in response to the settlement reached in the matter between the Minister of Social Development and the Trustees of the Black Sash. This meant that beneficiaries were entitled to payment from date of application. The Appropriation is needed to settle the back pay of applicants. The explanatory memorandum is attached as appendix 1.

Discussion.
Mr Nene (ANC) asked where people fit in who have passed away.

Mr Kruger replied that they fall into lapsed cases.

Ms Joemat (ANC) asked if beneficiaries of those who passed away would receive the back pay.

Mr Kruger said that if a person is alive the payment of the owed amount is easy. If the person has died the process will be longer because a tracing process must take place. He conformed that the estate would be able to claim the back pay.

He said that the implementation plan is being finalised. Currently the thinking is that the back pay will be transmitted through the grant system.

Ms Joemat added that a criteria for back pay could be by age because there life span is shorter.

Mr Kruger replied that the proposal has been noted.

Prof. Turok (ANC) asked if an application had to be commissioned to be valid. What he was asking for was the meaning of attestation.

Mr Kruger replied that attestation meant stamped by the department.

Prof. Turok asked for the courts reasoning behind overturning the previous decision. He also wanted to know if provinces could cope with the extra burden of making the payouts.

Mr Kruger replied that there was no court reasoning because the matter was settled. The matter hinged on the unfair treatment of beneficiaries.

On capacity he said that it is receiving attention and therfore staggered paymets will be implemented. Provinces will have to strengthen their admin to deal with the extra money.

Ms Taljaard (DP) commented that the Bill was broad in that the appropriation must be sued to fund he arrear payments to social grant beneficiaries. She said that the memorandum was clear and asked if there was a way to make the Bill as clear to ensure that the funds are used for the intended purpose.

Mr Kruger replied that clause 1 (b) provides that the Division of Revenue Act will provide the framework for the rant and the conditions imposed. The conditions is currently being drafted and will be gazetted.

Dr Koornhof (UDM) asked who would monitor payment and when is the process to be completed.

Mr Kruger replied that it will be the responsibility of the Department of Social Development. There is also regular reporting on expenditure to National Treasury. The process should not start later than June and the deadline is envisaged to be around the end of December 2002.

Ms Hogan followed up on the point raised by Ms Taljaard and said that clause 1(b) does not refer to any specific section on the division of Revenue Act.

Mr Donaldson replied that there is a tradition that appropriation legislation does not include the detail. This was also constitutionally correct. The tradition is that the appropriation bill must not reproduce or be a substitute for the legislation that adds content to the appropriation.

He added that National treasury has no clear view on this.

Ms Taljaard commented that she still has a degree of unease. Turning to another point she said that two regulations were declared invalid and wanted to know what impact this has on regulation of grants or whether there is no impact.

Mr Kruger replied that the offending regulations were amended to say that applicants are entitled to a grant from date of application.

There were no further questions. The chair read the report and the Bill was adopted.

Burundi Protection Support Appropriation Bill, 2002
A Chief Director in the Department of Defence briefed the Committee on the Bill. The background to the employment of troops and the need for the appropriation bill is contained in the memorandum (appendix 3) and the Minister's speech (appendix4). The appropriation bill is required because there is money in the Defence budget to deal with this unexpected expenditure.

International Assistance will be sought to cover costs. Money received will be paid into the RDP fund. The thinking was that the President committed the assistance of SA and sought international donations. For this reason it is not like other RDP spending and Treasury felt that the additional expenditure had to be approved by parliament.

Discussion
Ms Hogan referred to 16(1) of the PFMA that allows the Minister to authorise an appropriation but must report to parliament within 14 days of such approval. Ms Hogan asked when the President reported to parliament on this.

Mr Donaldson did not know the exact date. It was around the 3rd November 2001. Parliament was advised of the decision to deploy. The amount involved was not known. Time was needed to work out the exact amount and therefore the amount being appropriated is less than initially indicated.

Ms Hogan commented that the expenditure was to late to be included in the adjusted budget and therefore it has to be in the form of an appropriation bill. The bill must be tabled within 120 days of authorisation. The authorisation was granted on 12 February 2002 and the 120 day limit has been complied with. She asked if the initial authorisation have to specify an amount because it cannot be more than 2% of the annual national budget.

Mr Donaldson replied that the PFMA is broad and gives a ceiling of 2%. In this case sufficient time was given to allow a negotiation for the amount required.

Ms Taljaard was not sure if the President complied with his responsibilities terms of the PFMA and the constitution. In terms of the constitution the President must inform parliament of the deployment.

The member took the lead from the questioning of Ms Hogan and thought that the President has to inform Parliament on the authorisation in terms of the PFMA. The relevant section in the PFMA is section 16(4):

16 (4) An amount authorised in terms of subsection (1) must--
be reported to Parliament and the Auditor-General within 14 days, or if the funds are authorised for the deployment of the security services, within a period determined by the President;

The role that the president has to play is to determine the time in which the Minister has to report on the amount authorised for the deployment.

Ms Hogan said that the President reported in terms of the constitution in November 2001 and the Minister reported in terms of the PFMA in February 2002.

Ms Taljaard was concerned whether the President determined the time in which the Minister had to report.

Ms Hogan asked national treasury for the procedure to be spelt out. she felt that there had been no material infringement of the law and the committee should process the Bill.

Ms Taljaard said that it is the first time that 16(1) is being used and the committee needs to reflect on the precedent being set and whether the expenditure is indeed exceptional.

Ms Hogan replied that in this case the exceptional circumstances speaks for itself. It was part of the deal negotiated by Mr Mandela and it would have been unstatesmanlike to say that SA cannot assist in protecting returning exiles because parliament does not allow it. She was satisfied that the circumstances were exceptional.

Mr Donaldson added that not only must the expenditure be exceptional but there must also be no money in the Defence Vote. The defence budget was looked at and therefore less money is appropriated than initially expected.

Ms Hogan said that the committee would process the Bill but wanted a memo on the process in section 16.

The chair read the report and the bill was passed.

Western Cape Local Government Organisation (WECLOGO) & the City of Cape Town
Mr Michael Evans an attorney at Mallinicks Inc. presented the submission on behalf of WECLOGO and the City of Cape Town.

Mr Evans submitted that the Bill is necessary for the smooth, efficient, transparent and accountable conduct of municipalities' financial affairs but raise two concerns:

The first is that the bill excessively intrudes on the autonomous status of local government and the offending provisions as a result are unconstitutional.

The second concern is that the bill is over-prescriptive.

The written submission highlights the offending provisions. The full submission is attached as Appendix 5.

Discussion
Ms Taljaard raised the separation of power doctrine and asked if there was not complication in this regard in respect of municipal budgets.

Mr Evans replied that if wrong decisions are taken then the voters have a say. It is not the role of other organs of state or even courts to interfere. There is definitely a role to play for National Treasury but it is an area that needs to be looked at.

Ms Hogan asked what is the role of National Treasury.

Mr Evans replied that section 216 of the constitution is clear on the role of Treasury. Measures must be prescribed to ensure transparency and expenditure control at local government by introducing recognised accounting practice, uniform expenditure classifications and uniform treasury norms and standards.

Ms Hogan asked what a uniform treasury norm and standard is. She asked if procurement policy was a uniform norm and standard.

Mr Evans replied section 217 deals with procurement and is not related to section 216.

Ms Hogan said that she just wanted clarity because there needs to be agreement on what the norms and standards are so that the committee can decide if the Bill is excessive.

Mr Evans said that he has no problem with the guidelines in the Bill but sometimes it becomes to prescriptive. An example is the establishment of the Treasury Office. There is no problem telling local government to establish such an office but the Bill gives National Treasury the authority to say who works there. Another example is that the Bill only allows the municipal manager to delegate to the CFO. Provisions like these go to far.

Ms. Hogan commented that government is embarking on a project to restructure local government. The bill is an important building block and one cannot presume that local government is functioning well.

Mr Evans had submitted that the Bill repeals section 10G of the Local Government Transition Act. in the process it overlooks two important sections that is needed for the proper functioning of local government. Ms Taljaard was concerned that if the sections mentioned are repealed a gap will exist that could result in litigation. She asked how this could be remedied.

Mr Evans replied that the two provisions that is included in 10G must be saved. This can be done by a simple amended to the Bill.

There were no further questions.

The Municipal Infrastructure Investment Unit (MIIU)
The submission was presented by Ms Gugu Moloi, CEO, and Mr James Leigland, Municipal Infrastructure Adviser.

To introduce the unit Ms Moloi said that their mandate is to leverage private sector investment for municipal infrastructure delivery and to create a conducive market to attract private investment.

Examples of projects are public / public partnerships like the coming together of the Rand Water Board and the Municipality and the Public Private Partnership at the Dolphin Coast. There are also examples of multi jurisdictional partnerships between different municipalities for the delivery of services

Ms Moloi said that these projects are relevant because the reality is that many public institutions face financial challenges and therefore there is a need to increase private sector involvement. The Bill is important because the Systems Act went a long way in facilitating public private partnerships but now a borrowing framework is put in place.

Mr Leigland said that the MIIU wanted to focus on municipal borrowing and financial emergencies.

He submitted that the Bill defines long term financial obligations only in terms of debt for 'property. Plant and equipment.' He said that it does not include municipal financial obligations associated with long term concession / management contracts, such as payment commitments or promises to keep tariffs at a specific level.

Section 27 authorises municipalities to use various security arrangements to back debt for property plant or equipment. It was submitted that municipalities may need the same security arrangements to back PPP's that will generate investment.

Section 29 only allows municipal guarantees to back debt of municipal entities. It is submitted that other kinds of financial obligations of especially new entities must be guaranteed by the municipality. Private partners will demand guarantees for contractual obligations.

The MIIU want the language of these two sections to be broadened to allow borrowing for investment purposes.

In respect of financial emergencies it was submitted that the bill must offer more protection for private partners. As it stands the Bill damages private sector confidence because the contracts could be abrogated as part of the workout process. The MIIU said that the financial position of the municipality must not be sacrificed to keep contracts running but some judgement and prudent consideration is needed before a decision is taken. This is important for private sector confidence.

Discussion
Mr Lalli (ANC) asked how long should the long term concessions be. He raised the question in the light of the Nelspruit problems and because it was argued that 5 year concessions is long enough.

Ms Moloi replied that concessions vary in length depending on the need of the municipality. The needs at Nelspruit and dolphin Coast was significant and needed significant investment. The municipalities could not borrow any more money. An alternative method of leveraging investment in an affordable way was needed. The norm for a concession is 20 - 30 years. She compared it to a home loan because nobody has that amount of money available immediately. She added that Nelspruit is being looked at closely. The problems have mainly been political in nature and is being addressed especially since the MEC for Provincial and Local Government has intervened. The problems provide lessons for the future.

Ms Joemat was not clear on what was the difference between debt and investment. Because when you buy a house you make an investment but at the same time you are in debt.

Mr Leigland replied that a municipality incurs debt to put infrastructure in place. With concession the municipality gives the concession but the private partner incurs the debt to make an investment in the area.

There were no further questions.

The meeting was closed.

Appendix 1

SOCIAL GRANTS APPROPRIATION BILL

To appropriate an additional amount of money for the requirements of the Department of Social Development in respect of the financial year ending 31 March 2002.

BE IT ENACTED by the Parliament of the Republic of South Africa, as follows :-

Appropriation of additional amount of money for requirements of Department of

Social Development

1. (a) Subject to the Public Finance Management Act, 1999 (Act No. I of 1999), there is hereby appropriated out of the National Revenue Fund for the requirements of the Department of Social Development an amount of R2 billion (two billion rand) in respect of the 2001/2002 financial year to fund arrear payments to social grant beneficiaries.

 

(b) The money contemplated in paragraph (a) must be made available to the nine provincial administrations as determined by and on the conditions imposed in the Division of Revenue Act, 2001 (Act No.1 of 2001).

Short title

2. This Act is called the Social Grants Appropriation Act, 2002.

Appendix 2

EXPLANATORY MEMORANDUM

SOCIAL GRANTS APPROPRIATION BILL, 2002

Regulation 10 issued in terms of the Social Assistance Act, 1992 (in effect until 31 March 1998) stated that social grants accrue from the day of attestation (application) and placed no limit on the time for which arrears could accrue. Regulation 11, promulgated on 31 March 1998 determined that grants only became payable from date of approval and that grants would not accrue for a period longer than three months from date of approval.

On 11 September 2001 the Transvaal Provincial Division of the High Court in the case of the Minister of Social Development and the Trustees of the Black Sash, ordered by consent that Regulation 11 be declared invalid and be set aside and that the repeal of Regulation 10 be declared invalid and set aside.

The implication of this decision is that for the period from 31 March 1998 qualifying beneficiaries were entitled to benefits from date of application. The actual practice, fully within the law, was to pay only from date of approval. Back pay was paid in some cases but seldom for the full delay between application and approval. Everyone who applied successfully for a pension or grant after 31 March 1998 is therefore entitled to claim the back pay (arrears) due to him or her from the date that his/her application was attested.

As provinces acted fully within the law and changes to regulations were, in effect, made retrospectively, provinces did not budget for the additional implications of regulatory change and could not have been expected to do so. Furthermore the financial implications are substantial and cannot be accommodated within current provincial baselines. Hence the Social grants Appropriation Bill, 2002 makes provision for the funding of the arrears payment from central government funds.

Appendix 3

 

INTRODUCTORY SPEECH BY THE MINISTER OF FINANCE ON THE SOCIAL GRANTS APPROPRIATION BILL, 2002
12 MARCH 2002

Madam Speaker,

In the President's State of the Nation Address of 8 February 2002 as well as my Budget Speech of 20 February 2002, reference was made to the need to support the Department of Social Development and provinces to deal with arrears in social grant payments that developed over the last three years.

The relevant arrears developed because provinces implemented regulations that we have now agreed are inequitable and which led to a set of inappropriate incentives in the administration of social pensions. The implementation of the regulations had the effect that poor South Africans who qualified for grants only received payment from the date of approval of grants, and not from the date that they applied and qualified. Where there were delays in processing and approval of grants poor beneficiaries were not always paid for the period of the delay. This certainly had severe negative effects for many poor households.

The relevant regulations in terms of the Social Assistance Act, 1992 have now been amended with effect from December 2001, with the result that beneficiaries are entitled to payment from date of application, if they qualified on that date, and where there are delays in payment they will be entitled to payment for the period of the delay.

Government has, however, agreed that it is not sufficient to change the situation as we move forward and acknowledged its debt to those grant beneficiaries who qualified for grant payments between April 1998 and December 2001. These people, about 1,8 million who qualified for grants for the first time during that period, have to be compensated for the lapse of time between application and approval.

The payment of these arrears is estimated to cost provincial welfare departments R2 billion. This provides for current active cases (that is, people still receiving grants) inactive and lapsed cases and some administrative expenditure. Provinces cannot be expected to foot this Bill from their equitable share as they implemented regulations as they stood in good faith and therefore did not make budgetary provision for what subsequently became arrears owing.

The Social Grants Appropriation Bill, 2002 therefore provides for R2 billion to be allocated to the national Department of Social Development to dispose of this matter. The funding will flow from the Department of Social Development to provinces as a conditional grant to be used to implement payment of the arrears. Based on further verification of arrears owed by the different provinces, the amounts to flow to the different provinces, and conditions in this regard will be gazetted in terms of the Division of Revenue Act, 2001.

The Bill therefore makes good Government's undertaking to do the right thing in this case and to be sensitive to the plight of the poor and vulnerable. An implementation plan is currently being finalised and more details about payment will be communicated soon. It should be acknowledged that the payment of these arrears is a mammoth undertaking - R2 billion exceeds the normal monthly benefit payments -and that to do it right, without disruption of normal processes and without negative effects on beneficiaries, will require careful planning which will take some time. Our commitment to pay, and the funding to effect this is made clear through the Social Grant Appropriation Bill.

Our ability to make these payments derives from our success in establishing a sound and sustainable fiscal framework and from improvements in tax administration. We cannot in future expect to be in such a fortunate position again, and in future such unplanned impositions will impact on the delivery of other services. The President has indicated clearly that administrative failure, which, in addition to its harsh effect on poor South Africans, causes budgetary uncertainty and has service delivery implications in other areas, cannot and will not be tolerated.

Madame Speaker, I hereby table the Social Grant Appropriation Bill, 2002.

Appendix 4

BURUNDI PROTECTION SUPPORT APPROPRIATION BILL

To appropriate an additional amount of money for the requirements of the Department of Defence in respect of the financial year ending 31 March 2002.

BE IT ENACTED by the Parliament of the Republic of South Africa, as follows:-

Appropriation of additional amount of money for requirements of Department of

Defence

1. (a) Subject to the Public Finance Management Act, 1999 (Act No.1 of 1999), an amount not exceeding R130 million in respect of the 2001/2002 financial year is hereby appropriated out of the National Revenue Fund for the requirements of the Department of Defence to defray expenditure incurred in the provision of protection support services to returning opposition leaders participating in the Transitional Government of the Republic of Burundi.

 

(b) Any funds that may be received from the international community to cover all or part of the expenditure contemplated in paragraph (a), must be deposited into the National Revenue Fund

Short title

2. This Act is called the Burundi Protection Support Appropriation Act, 2002.


Appendix 5

EXPLANATORY MEMORANDUM

BURUNDI PROTECTION SUPPORT APPROPRIATION BILL, 2002

In terms of the UN Security Council Resolution 1286 (2000) of 19 January 2000, the appointment of former President Nelson Mandela as the new facilitator of the Arusha Peace and Reconciliation process to achieve a peaceful solution to the conflict in Burundi was strongly supported. Resulting from the above, the Department of Defence entered into negotiations with the former Burundi government to deploy a protection detachment to protect returning exiled leaders to Burundi in October 2001. After the signing of a Memorandum of Understanding with the Burundi Government, President Mbeki, in terms of the powers vested in him by the Constitution of the Republic of South Africa, 1993 and the Defence Act, 1957, on 26 October 2001 authorised the deployment of protection support services to returning opposition leaders participating in the Transitional Government in Burundi. The deployment of 701 SANDF members commenced on 27 October 2001. Funds were not provided in the Department Of Defence's budget and a dedicated appropriation bill is therefore required to put the Department in a position to deal with this unexpected expenditure.

Despite initial indications that Ghana, Senegal and Nigeria would be involved in providing troops, it is not anticipated that it will realise in the near future. The SA Defence Force will therefore be involved in this operation for the best part of the 2002/03 financial year - at least for 8 months.

The international community has made pledges amounting to R266 million of which R17 million has been received. Agreements with the European Union, Belgium and the Netherlands have been finalised while the agreement with the United Kingdom is at an advanced stage.

Appendix 6

INTRODUCTORY SPEECH BY THE MINISTER OF FINANCE ON THE BURUNDI PROTECTION SUPPORT APPROPRIATION BILL, 2002

12 MARCH 2002

Introduction

Generally funds from the National Revenue Fund are appropriated in the annual budget at the beginning of each financial year. In cases that warrant adjustment to budgets, such adjustment may be presented to Parliament, usually during September or October of the relevant financial year.

However, the National Legislature accepted that there could be urgent cases where the general budget process would be too restrictive. In terms of section 16 of the Public Finance Management Act, 1999, the Minister of Finance was therefore empowered to authorise the use of funds from the National Revenue Fund to defray expenditure of an exceptional nature which is not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future parliamentary appropriation of funds. The more pertinent limitations 10 this power are -

i.that the combined amount of any such authorisations may not exceed two (2) per cent of the total amount appropriated in the annual national budget for the current financial year;

ii.the amount authorised must be reported to Parliament and the Auditor-General-usually within14

days but in the case in question within a period determined by the President as the funds were

required for the deployment of the security services; and

iii the expenditure must be included in appropriation legislation within 1 20 days of the date that the expenditure was authorised.

Background

In terms of the United Nations Security Council Resolution 1286 (2000) of January 2000, the appointment of former President Nelson Mandela as the new facilitator of the Arusha Peace and Reconciliation process to achieve a peaceful solution to the conflict in Burundi was strongly supported. South Africa was accordingly requested to contribute military personnel to perform protection tasks for the returning exiled leaders before the inauguration of the interim government

in Burundi. A Memorandum of Understanding was signed with the Burundi Government. The President, in terms of the powers vested in him by the Constitution of the Republic of South Africa, 1 993 and the Defence Act, 1 957, on 26 October 2001 authorised the deployment of protection support services to returning opposition leaders participating in the Transitional Government in Burundi. The deployment of 701 troops commenced on 28 October 2001.

Funds for the deployment were not provided in the Department of Defence's budget. On 12 February 2002, in terms of the powers vested in myself by section 1 6(1) of the Public Finance Management Act, 1 999,1 authorised the used of an amount not exceeding R130 million for the Burundi deployment. This allocation was announced in the budget speech made on 20 February 2002. A dedicated appropriation bill is therefore required to put the Department of Defence in a position to deal with this unexpected expenditure.

Despite initial indications that Ghana, Senegal and Nigeria would be involved in providing additional troops, it is not anticipated that this would realise in the near future. The Department of Defence will therefore be involved in this operation for the best part of the 2002/03 financial year - at least for B months. However, the actual duration of the deployment is dependent on the effective functioning of the Transitional Government and the progress of the peace process.

Reports from Burundi indicate that the members of the South African National Defence Force have been well received by the local population. This has created a possibility for South Africa to be requested to provide additional protection support, should the need arise.

Financial Implication

The projected expenditure for the 2001/02 financial million consisting of the following:

a) personnel allowances - R18,407 million

b) Equipment and facilities - R19.350 million

 

c) Medical consumables and equipment - R3.417

d) Sustainment - R14,268 million

e) aircraft chartering and transport - R74, 282 million

Total - R129.282 million

An amount of R270 million has been allocated in the 2002/03 budget of Defence to finalise the project.

The international community has made pledges amounting to R266 million of which R17 million has been received. Agreements with European Union, Belgium and the Netherlands have been finalised while the agreement with the United Kingdom is at an advanced stage. The USA is also considering making a contribution either in cash or in kind. Any funds received will be deposited into the National Revenue Fund.

Conclusion

Madam Speaker, I hereby introduce the Burundi Protection Support Appropriation Bill, 2002.

Appendix 7

 

ORAL REPRESENTATIONS
TO: THE PORTFOLIO COMMITTEE ON FINANCE
REGARDING: THE LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT BILL [B1-2002]
BY: MICHAEL EVANS OF MALLINICKS INC.
ON BEHALF OF: WESTERN CAPE LOCAL GOVERNMENT ORGANISATION AND THE CITY OF CAPE TOWN
DATE: 13 MARCH 2002

1.The Local Government: Municipal Finance Management Bill ("the Bill") is an essential legislative act necessary for the smooth, efficient, transparent and accountable conduct of municipalities' financial affairs. When implemented, it will go a long way towards modernising budgets and financial practices at local government level. It is also the penultimate legislative act in the suite of legislation that will govern the operation of municipalities, the last being the Local Government: Property Rates Act.

2. The Bill is envisaged in sections 215 and 216 of the South African Constitution, 1996 ("the Constitution") and in a general sense its passing is supported by the Western Cape Local Government Organisation (WECLOGO) and the City of Cape Town ("the City"); however, both WECLOGO and the City have a number of concerns, most of which fall into two categories: -

2.1 firstly, the Bill excessively intrudes on the relatively autonomous status of local government. Accordingly, while the Bill as a whole may pass constitutional muster, many of its provisions do not;

2.2 secondly, in many instances the Bill is over-prescriptive and in some instances unreasonable - a classic case of "lowest common denominator" legislation.

3. I have read the submissions of the South African Local Government Association (SALGA) and the Municipal Demarcation Board (MDB) and I was present when SALGA made their oral representations. Both SALGA and the MDB have succinctly summarised the relevant constitutional provisions which have a bearing on the Bill, and I do not intend repeating their submissions; suffice it to state that the Constitution envisages a strong and relatively autonomous local sphere of government which, within the framework of the Constitution and of legislation provided for in the Constitution, must "on its own initiative, (govern) the local government affairs of its community." [Section 151(3)]. The concomitant responsibility of national and provincial government is to ensure that they do "not compromise or impede a municipality's ability or right to exercise its power or perform its functions."[Section 151(4)].

4. This status of local government is reiterated in and reinforced by the Local Government: Municipal Systems Act, 2000 ("the Systems Act"), in particular section 4 thereof which deals with the rights and duties of municipal councils, including the right to exercise executive and legislative authority "without improper interference." [Section 4(1)(c)].

5. The role of monitoring and supporting local government and building the capacity of local government largely falls on the provincial sphere of government, rather than the national sphere. This is clearly set out in section 155(6) of the Constitution and section 105 of the Systems Act.

6. Lastly, with regard to the legislative framework, the entire system is held in check and the necessary balance maintained by Chapter 3 of the Constitution, which deals with co-operative government, and which obliges all three spheres of government to ensure that they do not "encroach on the geographical, functional or institutional integrity of government in another sphere. " [Section 41(1)(g)].

7. It is against this legislative backdrop (as read with the legislative summary in the SALGA and MDB submissions) that WECLOGO and the City examined the provisions of the Bill that was published for comment on 31 August 2001. (As an aside, I note that, despite having submitted their comments in October and November 2001, few if any of the comments and suggested amendments made by WECLOGO and the City have been dealt with or incorporated in the latest draft of the Bill published in January 2002).

8. Because of the relatively limited time allotted to WECLOGO and the City, I do not intend embarking on a chapter-by-chapter or section-by-section analysis of the Bill. I have, however, prepared a summary of those sections to which WECLOGO and the City most strenuously object and have attached the summary as an annexure to this memorandum. The annexure needs to be read together with WECLOGO and the City's written comments on the Bill submitted to your Committee last year.

9.I mentioned at the outset that WECLOGO and the City's objections fall into two categories. I intend to highlight those objections with reference to a couple of examples. I stress that these are examples only; the objections permeate the entire Bill, as reflected in the attached summary.

10. Section 5 of the Bill sets out the functions of the National Treasury. The constitutional authority for this is contained in section 216 of the Constitution, subsections (1) and (2) of which provide as follows: -

"(1) National legislation must establish a national treasury and prescribe measures to ensure both transparency and expenditure control in each sphere of government, by introducing -

(a) generally recognised accounting practice;

(b) uniform expenditure classifications; and

(c) uniform treasury norms and standards.

(2) The national treasury with the concurrence of the Cabinet member responsible for national matters, may stop the transfer of funds to an organ of state only for serious or persistent material breach of the measures established in terms of subsection (1)."

11. Subsection (2) of section 5 lists nine powers of the National Treasury, one of which, set out in paragraph (h) empowers the Treasury to -

"take appropriate steps, including the stopping the funds to a municipality or municipal entity in terms of section 216(2) of the Constitution, if the municipality or municipal entity commits a serious or persistent material breach of this Act."

In two respects section 5(2)(h) of the Bill grants to the National Treasury powers not contemplated in section 216 of the Constitution. Firstly, if a municipality or municipal entity "commits a serious or persistent material breach of this Act", section 216(2) empowers the National Treasury to stop the transfer of funds. Section 5(2)(h) goes further, however, by empowering the National Treasury to "take appropriate steps, including the stopping of funds." In other words, while the Constitution only grants the National Treasury a single sanction, the Bill goes far further by permitting the National Treasury to take appropriate steps, one of which may involve the stopping of funds.

12. Secondly, section 216(2) of the Constitution only permits the National Treasury to stop the transfer of funds if there has been a serious or persistent material breach of the measures established in terms of section 216(1), i.e. those measures introducing generally recognised accounting practices, uniform expenditure classifications and uniform treasury norms and standards. Section 5(2)(h) of the Bill, however, allows National Treasury to take appropriate steps, including the stopping of funds, if the municipality or municipal entity "commits a serious or persistent material breach of this Act." Since the Bill deals with matters that go well beyond the measures provided for in section 216(1)(a), (b) and (c) of the Constitution, it effectively confers on the National Treasury far wider and more extensive powers than are envisaged in section 216 of the Constitution.

13. I have dealt with this example at some length simply to illustrate the manner in which the Bill confers powers on a national organ (National Treasury) for which the Constitution makes no provision.

14. But there is another feature of section 5(2)(h) of the Bill that warrants some comment. It is a noticeable feature of the entire Bill that there is very little reference to provinces, and in particular to the monitoring, support and supervision role that provinces must play, inter alia in terms of section 155(6) of the Constitution and section 105 of the Systems Act. Section 5(2)(h) grants National Treasury drastic powers; indeed, the entire subsection (2) confers on National Treasury very extensive monitoring and intervention powers. Yet no reference is made in section 5 to the primary role that provinces must play in monitoring, supporting and supervising local government and, in certain extreme instances, intervening in the affairs of local government in terms of section 139 of the Constitution. Section 41(1)(h) of the Constitution requires all spheres of government to inform one another and consult with one another on matters of common interest and to co-ordinate their actions. Steps such as those provided for in section 5(2) of the Bill should surely require the national sphere of government (in the form of the National Treasury) to act in accordance with its obligations in terms of Chapter 3 of the Constitution and at least consult with the relevant province before taking any appropriate steps.

15. As I have already stated, this is simply one example of an ultra vires provision in the Bill. There are many other examples that illustrate more clearly the manner in which the Bill intrudes on the relatively autonomous status of local government. Thus, for example, section 8(2)(b) requires municipalities to obtain the consent of the National Treasury before changing their primary bank account; section 12(1) obliges the National Treasury to prescribe a framework within which municipalities must conduct their cash management and within which they may invest or lend money not immediately required; section 13 fetters the ability of a municipality to transfer ownership of certain assets; section 14 limits the ability of a municipality to hold minority interests in certain instances; section 43 prescribes how a municipality must organise and structure itself; section 58 gives the National Treasury the power in certain circumstances to appoint the accounting authority of a municipality, etc. -the list is extensive.

16. In addition, section 106 of the Bill grants the National Treasury the power to make regulations in regard to a range of issues not even contemplated in section 216 of the Constitution, for example, in regard to a framework for the exercise of municipal fiscal and tariff fixing powers; a framework for a procurement and provisioning system; a framework for public/private partnership agreements; the establishment of, and control over, municipal entities and business units; the transfer of assets from a municipality to a municipal entity and the alienation, letting or disposal of assets by a municipality.

17. In summary, the Bill affords National Treasury extensive and wide-ranging powers not even contemplated in the Constitution and in so doing intrudes on the relatively autonomous status of local government as provided for in the Constitution.

18. I mentioned that in many instances the Bill is over-prescriptive and unreasonable. Once again, a couple of examples will suffice.

19. Section 13 of the Bill prohibits a municipality disposing of a capital asset needed to provide a minimum essential municipal service. It is totally unclear why this provision has been included, and in any event it implicitly contradicts the provisions of Chapter 8 of the Systems Act. Chapter 8 of the Systems Act deals with municipal services. It empowers municipalities in certain instances to provide municipal services, including minimum essential municipal services, through external mechanisms. Thus, for example, a municipality would be entitled to outsource its waste disposal operation to an external entity. It may, in such circumstances, elect to sell some of its capital assets associated with its waste disposal facilities to the external entity. Yet section 13(1) of the Bill would prevent it from doing so. Not only does this provision unreasonably restrict a municipality in conducting its affairs, but it probably also unconstitutionally intrudes on the relatively autonomous status of local government.

20. In a similar fashion, section 14 prohibits municipalities from holding minority interests in all but a very limited number of external entities. Once again, it is totally unclear why this sort of restriction has been imposed. A municipality may, for example, elect to conduct its municipal tourism function through an external entity in which it holds a minority interest. Yet it would be prevented from doing so in terms of section 14 of the Bill.

21. There are other examples of this type of interference, some of which have been listed in the attached summary.

22. A final criticism of the Bill relates to the fact that the drafters appear to have been unaware, or to have improperly taken into consideration, the provisions of other legislation impacting on local government. I have already given the example of the absence of any cross-referencing to the monitoring provisions in the Constitution and the Systems Act and the absence of a proper synergy with Chapter 8 of the Systems Act. Another example is section 23 of the Bill which deals with the assignment of new functions to municipalities. There is already a plethora of legislation governing the assignment of functions. Sections 44, 99,104 and 126 of the Constitution deal with the issue. Assignments are further regulated in section 9 and 10 of the Systems Act and the annual Division of Revenue Act also imposes stringent controls. Now section 23 of the Bill will impose additional controls and create something of a nightmare for those involved in national or provincial government who are considering the assignment of functions to municipalities.

23. A more disturbing example of the Bill's failure to synergise with associated legislation is section 119 thereof, which deals with the repeal and amendment of legislation. Without qualification, section 119(1) repeals section 10G of the Local Government Transition Act, 1993 ("the LGTA"). No provision has been made to save or re-promulgate two crucial subsections of section 10G: -

23.1 section 10G(6A) of the LGTA (as amended by section 93 of the Local Government Municipal Structures Act, 1998) deals with the valuation of municipal properties. This subsection must remain in place at least until the Local Government: Property Rates Bill is passed and brought into effect;

23.2 section 10G(7)(a)(ii) of the LGTA empowers municipalities to levy and recover "levies, fees, taxes and tariffs in respect of any function or service of the municipality." There is no corresponding legislation in place that confers on municipalities' similar powers. Section 229(1)(b) of the Constitution requires national legislation to authorise the imposition of other taxes, levies and duties appropriate to local government." If section 10G(7)(a)(ii) of the LGTA is repealed, an important fiscal power of local government will be removed. It is vital that this power is retained.

24. What these examples reveal - and there are many others that I could list if time permitted - is that the authors of this legislation appear to have consulted insufficiently with local government. Had there been proper consultation with bodies such as SALGA, the MDB, the clients which I represent (WECLOGO and the City) and the Department of Provincial and Local Government, it is doubtful that the legislation would have been so riddled with problems. These problems are so extensive and wide-ranging as to justify a return to the drawing board so that proper consultation can ensue and so that the Bill can be fundamentally recast and amended.

25. Finally, on behalf of WECLOGO and the City, I wish to thank the Committee for giving me an opportunity to make these submissions and I look forward to the further deliberations of your Committee in regard to this complex but crucially important legislative act.

 

 

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