Social Grants Appropriation Bill; Burundi Protection Support Appropriation Bill: briefing & adoption; Division of Revenue Bill:

NCOP Finance

17 March 2002
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Meeting Summary

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Meeting report

FINANCE SELECT COMMITTEE

FINANCE SELECT COMMITTEE
18 March 2002
SOCIAL GRANTS APPROPRIATION BILL; BURUNDI PROTECTION SUPPORT APPROPRIATION BILL: BRIEFING & ADOPTION; DIVISION OF REVENUE BILL: FINAL MANDATES

Chairperson:
Ms Mahlangu

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)
Notes on the Burundi Protection Support Appropriation Bill, 2002 (Appendix 7)
Division of Revenue Bill [B5b - 2002]
Amendments agreed to by the Select Committee on 13/03/2002 on Division of Revenue Bill (Appendix 8)
Final Mandates of Free State (Appendix 9), Kwazulu- Natal (Appendix 10), Limpopo (Appendix 11), Mpumulamga (Appendix 12), Northern Cape (Appendix 13), Western Cape (Appendix 14) and Gauteng (Appendix 15)
Committee Report on the Division of Revenue Bill (Appendix 16)
Committee Report on the Strategic Planning Workshop

SUMMARY
The Committee was briefed on the Burundi Protection Support Appropriation Bill and the Social Grants Appropriation Bill. The formal deliberations were concluded and both Bills were passed.

The provinces tabled their final mandates on the Division of Revenue Bill. The mandates for Eastern Cape and North West had not arrived. All the provinces supported the adoption of the Bill and mandated the delegates to vote in favour thereof. The Bill was adopted.

The Committee reports on the Division of Revenue Bill and the Strategic Planning Workshop were adopted.

MINUTES
Social Grants Appropriation Bill
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. [See Appendix 1 for explanatory memorandum].

Discussion
Mr Ralane (ANC) asked who does the Bill apply to and what are the implementation plans.

Mr Durr (ACDP) asked for a copy of the regulations that gives the framework for the appropriation. He asked if a deceased estate can claim and if beneficiaries must submit new applications.

Mr Kruger replied that every person who applied between 31 March 1998 and December 2001 will qualify. He said that this is about 2 million people. Implementation is hoped to take place between June and December. Most grants can be easily dealt with except in respect of lapsed and suspended cases. The Deceased Estate can claim but it will be more complex. No new application is required as the payments are generated automatically.

In response to the request for the regulations, Mr Kruger advised that the framework for the appropriation will be published in the Gazette and will be available soon.

The Bill was adopted.

Burundi Protection Support Appropriation
Mr Hart, 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 and the Minister's speech. 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 had 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. [See Appendix 5, 6 & 7 for explanatory memorandum].

Discussion
Dr Conroy (NNP) commented on the cash in transit heist and the loss of foreign currency of money that was intended to fund the deployment. He wanted to know the amount taken and the effect thereof.

Mr Hart replied that no more additional funds will be appropriated. Any loss suffered will have to be covered by the Department of Defence. He said that he had read the amount taken in a newspaper but could not remember.

Mr Durr raised a concern about the donor funds going into the RDP fund. Secondly he asked how long was the operation in Burundi going to take and whether it was not the international communities responsibility.

Mr Hart replied that the allocation is for one year and will end in August. In response to the first question he said that money is withdrawn from the RDP fund by agreement with the donor. He added that donors would not be happy with money going straight into the National Revenue fund.

Mr Theron (DP) asked if SA will get the money back because the explanatory memorandum states that donor funding will cover the cost.

Mr Hart replied that the money will be recovered. At this stage only R17.6 million has been received but the Netherlands and the UK are just about finalised.

The chair read the report and the Bill was adopted.

Division of Revenue Bill
Ms Wendy Fanoe and Ms Karen Harrison from the Department of Provincial and Local Government (DPLG) commented on the division of functions between category B & C municipalities on the equitable share formula.

Ms Harrison advised the committee that in terms of the Municipal Systems Act the Minister can authorise category B municipalities to carry out certain functions such as electricity and water services after a capacity assessment has been done. She said that at the moment there is no final decision because of the extensive consultation process that has to be undertaken with other Ministers, SALGA, FFC and the municipal demarcation board. The Minister will make a public statement in early April.

Ms Fanoe referred to the KZN High Court judgment that ruled that category C municipalities cannot be excluded from accessing the equitable share. There has always been an agreement on the division of revenue at a local level when the district also renders services. The problem at local municipalities is that there is an unwillingness to share the money. Government therefore had to work out a framework to allocate to category C municipalities. What these municipalities previously got was looked at and the allocations are ready but consultation with SALGA needs to take place.

For 2002 / 03 the municipality status quo remains to allow time for municipalities. The allocation to C municipalities consists of the I grant, allocations to district management areas and the S grant to nodal areas for the delivery of basic services.

Discussion
Mr Ralane said that not all nodal areas were included in the Bill and wanted to know if it was an oversight. Secondly, he commented that water is being disconnected and people cannot afford to pay the reconnection fee. He asked if this fee is included in the basic services grant.

Ms Fanoe replied that the nodes as per last year will remain and no further new nodes will be added. The idea is first to see delivery from the existing nodes.

She said that it was the responsibility of the Municipality to subsidise and determine the level of service. Municipalities are entitled to use part of the equitable share as a reconnection fee to subsidise poor households. The important issue is that an indigent policy is needed along with effective credit control - then there will be no need to disconnect the water in the first place.

Mr Durr asked what the DPLG was doing to get proper policies (Indigent) in place.

Ms Harrison replied that DPLG had produced a status quo report to see if the transformation process is on track. It was found that transformation needed to be speeded up. The DPLG is in the process of finalising a national capacity building programme that will provide for a direct support mechanism to municipalities and provinces.

The Chair referred to the Auditor General submission that states that municipalities do not pay their audit fees, she asked for the view of DPLG.

Ms Fanoe replied that the audit fees is just one statutory commitment that the municipalities face. Another example is the money owed to SARS. When dealing with these issues, there are two considerations. The first is the default and the second is the impact of taking money away from the equitable share to cover the fees.

There were no further questions.

Final Mandates
The provinces had submitted their final mandates except for the Eastern Cape and North West. All the provinces instructed the delegates to support the Bill.

The amendments agreed to by the Committee on 13 March 2002 appear as Appendix 8 hereunder.

The Chair put the Bill before the committee and it was supported by all the provinces with the amendments.

Adoption of Committee Reports
The Committee considered two reports. The Report on The Division of Revenue Bill and the
Committee Report on The Strategic Planning Workshop.

In respect of the Report on the Division of Revenue Bill, Mr Durr commented that he had read the report and felt something has to be said about moving hearings forward especially since the Bill gets gazetted in December. The provinces do not have enough time to consider the Bill in the way they want to.

The Chair said that it was a good idea but the practicalities thereof have to be considered. She asked the Committee to adopt the report now and then it can be discussed after recess.

The Committee adopted both reports.

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

SELECT COMMITTEE ON FINANCE

NOTES ON THE BURUNDI PROTECTION SUPPORT APPROPRIATION BILL, 2002

18 MARCH 2002

Chair. Thank you for the opportunity to address this Committee.

The protection support requirement was initiated by the Arusha Peace and Reconciliation process, when the former President Nelson Mandela, requested that South Africa should investigate the possibilities of providing military support to the peace process in Burundi The Minister of Defence was consequently mandated to form a coalition with other African countries to further investigate the matter. 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.

From a financing point of view the requirement to render support in Burundi became a reality at too late a date to accommodate the funding thereof in the general budget process adopted by Parliament. This is said because the President (in terms of the powers vested in him by the Constitution of the Republic of South Africa, 1993 and the Defence Act, 1967,) authorized the deployment of the protection support services on 26 October 2001. The deployment of 701 troops commenced on 28 October 2001 - too late for the adjustment to budgets usually presented to Parliament during September or October of the relevant financial year.

It is accepted that the budget of the Department of Defence provides for preparation of forces and that funds for the deployment of forces are not provided in that Department's budget. The reason for this is the unknown cost for specific deployments - i.e. number of personnel to be deployed, where the deployment is to, what equipment will be required and for what period the deployment will be.

Initial costing estimates are as follows:

26 October 2001: RB1,221 based on US$1 = R9,35 (US$130 million)

providing for 1 467 personnel

2 November 2001: R535,23 million, of which R253,24 is required for

2001/02, providing for 701 personnel

30 January 2002: R129,724 for the deployment of 701 personnel.

Because funds were not provided for in the budget of Defence, the Minister of Defence requested the Secretary for Defence to provide funds for the proposed

Burundi deployment. The Secretary for Defence subsequently informed the

Minister of Defence that funds were unavailable and that the mission placed the

Department at risk of over-expenditure of the Defence. vote. The Minister of

Defence thereupon directed the Secretary for Defence in writing to proceed.

The following provisions of the PFMA should be noted:

Section 63(1)(a):

"Executive authorities of departments must perform their statutory functions within the limits of the funds authorised for the relevant vote."

Section 39(1)(b):

"The accounting officer for a department is responsible for ensuring that expenditure of a department is in accordance with the vote of the department and the main divisions within the vote."

The total operation would probably be financed from donor funding. Donor funding is usually paid into the RDP Fund to be utilised to finance reconstruction and development projects and programmes authorised by the Cabinet as well as in accordance with a technical assistance agreement. It is the position of National Treasury that it is inappropriate not obtain Parliamentary authority to incur expenditure on a significant military deployment. In order to legalise the expenditure the Minister of Finance was requested to exercise the powers vested in him by section 16(1) of the Public Finance Management Act, 1999.

In terms of that section (16(1) of the Public Finance Management Act, 1999) the Minister of Finance is 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 to 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 within 14 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 120 days of the date that the expenditure was authorised.

It might be objected that "serious prejudice to the public interest" would not result from a failure to fund the Burundi mission. However, "public interest" in its broader reading is certainly possible and there is little doubt that a successful transition to peace in Burundi would be a public good of considerable scale. More generally the Burundi deployment constitutes an exceptional expenditure of the kind envisaged by section 16.

On 12 February 2002, in terms of the powers vested in the Minister of Finance by section 16(1) of the Public Finance Management Act, 1999, the Minister authorised the use 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.

Appendix 8

AMENDMENTS AGREED TO BY THE SELECT COMMITTEE ON FINANCE

ON THE DIVISION OF REVENUE BILL [B 5B-2002] ON 1310312002

CLAUSE 1

1. On page 2, from line 16 to 19, omit the definition of "financial year".

2. On page 2, in line 26, after the word "municipality" insert the words "or such other person who has been instructed or delegated by the council to perform the functions of an accounting officer".

3. On page 2, after line 26, insert the words: '" municipal public entity" means-a board, commission, company, corporation, fund, utility or other entity which is-

(a) a juristic person under the ownership control of a municipality;

(b) established pursuant to a resolution of the council or in terms of legislation;

(c) fully or substantially funded either from municipal funds or by way of a tax, levy or other money imposed in terms of legislation; and

(d) accountable to the municipality.'

4. On page 3, from line 3 to 6, substitute the definition of "next financial year" with ' "next financial year" means the financial year commencing on 1 April 2003 and ending on 31 March 2004.

CLAUSE 4

1. On page 4, after line 18, insert: "(2) A recommended division of anticipated revenue for each province for the next financial year and the 2004/2005 financial year and which is subject to the provisions of the annual Division of Revenue Act for those financial years, is set out in Column B of Schedule 2."

2. On page 4, and as a consequence of the insertion of a new sub-clause (2)-

(a) The sub-clause beginning with the words "Each province's" becomes sub-clause "(3)";

(b) The sub-clause beginning with the words "Despite subsection (2)" becomes sub-clause "(4)" and the words "subsection (2)" in that sub-clause are substituted with the words "subsection (3)" wherever they appear;

(c) The sub-clause beginning with the words "The advances contemplated" becomes sub-clause "(5)" and the words "subsection (3)" in that sub-clause are substituted with the words "subsection (4)".

CLAUSE 8

1. On page 5, in line 40, omit the words "or private".

2. On page 5, in 41, substitute the words "or other" with "or municipal".

CLAUSE 12

1. On page 6, in line 36, omit the words "on the budget of the benefiting municipality".

CLAUSE 14

1. On page 7, in line 20, insert after the words "end of that month" the words "and for the financial year up to the end of that month".

2. On page 7, in line 22, insert after the words "reported on" the words and for the financial year up to the end of that month".

CLAUSE 15

1. On page 7, in line 42, insert after the words "the Treasury must" the words ", not later than the date determined by the National Treasury,".

CLAUSE 16

1. On page 7, in line 54, insert after the words "month reported on" the words "and for the financial year up to the end of that month".

2. On page 7, in line 56, insert after the words "month reported on" the words "and for the financial year up to the end of that month".

3. On page 7, in line 58, insert after the words "month reported on" the words "and for the financial year up to the end of that month".

4. On page 8, after line 6, insert:

"(3) The receiving officer of a municipality which intends to transfer to another municipality an allocation or portion of it transferred to it in terms of this Act must, prior to such transfer, obtain the approval of the National Treasury.

(4) The Minister may prescribe additional duties for the relevant officers of the municipalities contemplated in subsection (3)."

CLAUSE 17

1. On page 8, in line 18, substitute the words "be made at the end of each quarter" with the words "include reports for each quarter and be in such format determined by the National Treasury.

CLAUSE 18

1. On page 8, in line 24, omit the words "during the financial year".

2. On page 8, in line 41, insert after the words "Public Finance Management Act" the words "or in any other national legislation or prescribed".

3. On page 8, in line 43, omit the words "during the financial year".

CLAUSE 20

  1. On page 9, in line 9, omit after the words "in the audit" the word "of" and insert the words

"report on the".

2. On page 9, in line 10, insert after the word "statements" the words "of a department or municipality".

3. On page 9, from line 15, substitute the whole of clause of 20(c) with "(C) the evaluation of evidence supporting the amounts and disclosures in monthly and annual reports contemplated in this Act".

CLAUSE 21

1. On page 9, in line 27, insert after the words "the National Treasury and", the words ", if the National Treasury deems it appropriate,".

CLAUSE 22

1. On page 9, in line 42, substitute the words "Schedule 3, 4, 5 or 6" with the words "Schedule 3, 4 or 5".

2. On page 9, in line 43, omit the word "approved".

CLAUSE 25

1. On page 10, in line 29, omit the word "national".

CLAUSE 27

1. On page 11, in line 6, substitute the words "subsection (1)" with the words "subsection (2)".

2. On page 11, in line 11, insert after the words "National words "and the relevant provincial treasury".

CLAUSE 28

1. On page 11, in line 22, insert after the words "the National Treasury and" the words ", the National Treasury deems it appropriate,".

2. On page 11, in line 25, insert after the word "improved" the words "accountability or".

SCHEDULE 3

1. On page 14, above the column marked insert the words "Column A", and above Outer Years" insert the words "Column B".

2. On page 15, above the column marked insert the words "Column A", and above Outer Years" insert the words "Column B".

SCHEDULE 4

1. On page 16, above the column marked "2002/03 Allocation R'000" insert the words "Column A", and above the column marked "MTEF Outer Years" insert the words "Column B".

2. On page 17, above the column marked "2002/03 Allocation R'000" insert the words "Column A", and above the column marked "MTEF Outer Years" insert the words "Column B".

3. On page 18, above the column marked "2002/03 Allocation R'000" insert the words "Column A", and above the column marked "MTEF Outer Years" insert the words "Column B". In paragraph c of the column marked "name of allocation" substitute the words "(councilling and testing)" with the words "(health)". In paragraph c of the column marked "purpose" insert after the words "councilling and testing" the words "homebased care, mother to chiuld prevention programmes and other HIV / AIDS related matters."

4. On page 19, above the column marked "2002/03 Allocation R'000" insert the words "Column A", and above the column marked "MTEF Outer Years" insert the words "Column B".

5.On page 20, above the column marked "2002/03 Allocation R'000" insert the words "Column A", and above the column marked "MTEF Outer Years" insert the words "Column B".

6. On page 21, above the column marked "2002/03 Allocation R'000" insert the words "Column A", and above the column marked "MTEF Outer Years" insert the words "Column B".

7. On page 22, above the column marked "2002/03 Allocation R'000" insert the words "Column

A", and above the column marked "MTEF Outer Years" insert the words "Column B". In

paragraph (b) of the column marked "Name of Allocation" substitute the words "(Home Based

Care)" with the words "(Community Based Care)". In paragraph (b) in the column marked "

Purpose" substitute the words "home-based care (HBC)" with the words "community-based care

(CBC)".

SCHEDULE 5

1 On page 23, above the column marked insert the words "Column A", and above Outer Years" insert the words "Column B".

2. On page 24, above the column marked insert the words "Column A", and above Outer Years" insert the words "Column B".

3. On page 25, above the column marked insert the words "Column A", and above Outer Years" insert the words "Column B".

4. On page 26, above the column marked insert the words "Column A", and above Outer Years" insert the words "Column B".

SCHEDULE 6

1 On page 27, above the column marked "2002/03 Allocation R'000" insert the words "Column A", and above the column marked "MTEF Outer Years" insert the words "Column B".

2. On page 28, above the column marked "2002/03 Allocation R'000" insert the words "Column A", and above the column marked "MTEF Outer Years" insert the words "Column B".

3. On page 29, above the column marked "2002/03 Allocation R'000" insert the words "Column A", and above the column marked "MTEF Outer Years" insert the words "Column B".

4. On page 30, above the column marked "2002/03 Allocation R'000" insert the words "Column A", and above the column marked "MTEF Outer Years" insert the words "Column B".

Appendix 9

FREE STATE LEGISLATURE

PORTFOLIO COMMITTEE ON FINANCE

Report on voting mandate on Division of Revenue Bill [B5 - 2002]

Report from inter-provincial meeting

On the 18 March 2002, Advocate J. Machaka, Assistant Legal Advisor of the Free State Legislature briefed the Committee on the report from inter-provincial meeting.

The Committee was informed about amendments effected on the Division of Revenue Bill.

Consideration

The Committee considered amendments on the Bill and information received. The Committee supports the Bill with amendments.

Recommendations

The Committee recommends that:

Authority be conferred to the Free State Delegation, to vote for the adoption of the Bill with amendments.

MR T MARAIS

Chairperson: Finance Committee Free State Legislature

18 March 2002

Ms. E. Rockman

Secretary to the Legislature

Appendix 10

VOTING MANDATE AGREED TO BY THE PROVINCIAL NATIONAL COUNCIL OF PROVINCES STANDING COMMITTEE ON THE DIVISION OF REVENUE BILL

[B5B-2002]

DATE : 15 MARCH 2002

The Provincial Standing Committee on the National Council of Provinces mandates the KwaZulu-Natal delegation to the National Council of Provinces to support the DIVISION OF REVENUE BILL [B5B-2002] and the agreed amendments of the Select Committee on Finance.

And any further amendments, providing that :

a) such amendment/s does/do not alter the essential elements of the Bill and;

b) consensus is reached on such proposed amendment/s by the KwaZulu-Natal delegates attending the Select Committee finalising the bill and/or the plenary session of NCOP voting on the bill ;

In the event the proviso not being complied with, the proposed amendment/s must be referred to the Provincial Standing committee on NCOP for decision.

MRS LG NGCOBO

CHAIRPERSON : PROVINCIAL NCOP COMMITTEE

Appendix 11

RESOLUTION OF THE LEGISLATURE OF THE LIMPOPO PROVINCE ON THE DIVISION OF REVENUE BILL (B5 - 2002)

The legilslature of the Northern Province has at its sitting held on 14 March 2002, adopted the report of the Portfolio Committee on Finance, economic Affairs and Tourism on the Division of Revenue Bill (B5 - 2002) and conferred mandate to NCOP delegates to vote in favour of the Bill.

SECRETARY: LEGISLATURE OF THE NORTHERN PROVINCE

Appendix 12

MPUMULANGA

FINAL MANDATE

The Portfolio Committee on Finance and Economic Affairs deliberated and tabled a Report on the Division of Revenue Bill [B5B - 2002]. The following concerns which have an effect in the allocation of funds in Mpumalanga have been raised:

  1. The use of the statistics of the 1996 census which are currently unreliable as data.
  2. The surge in population of the province, caused by the influx of illegal immigrants from neighbouring countries, was not properly considered when allocating funds to Mpumulanga.

The Permanent delegates representing Mpumulanga in the NCOP are conferred with authority and mandated to vote in favour of the Bill.

The Mpumulanga Provincial Legislature gave this mandate at its siting on 14 March 2002.

SW LUBISI

SPEAKER: MPUMULANGA LEGISLATURE

Appendix 13

Northern Cape

TO: THE SECRETARY TO THE NCOP

FROM: OFFICE OF THE SPEAKER

FINAL MANDATE: DIVISION OF REVENUE BILL [B5B-2002]

After having considered the Bill, the Northern Cape Province Permanent Delegates to the National Council of Provinces, are hereby mandated to vote for the Division of Revenue Bill [B5B-2002] as recommended by the Portfolio Committee on Finance, taking into consideration the attached concerns.

In the definitions, the Committee supports the addition in terms of category C Municipalities, as we have municipalities with large District Management Areas. Siyanda Municipality previously did not get the equitable share, it is a positive step for them;

Part 1 Clause 2: The objectives of the Bill are in line with the Constitution, as Local Government is a sphere of Government;

Clause 7: The Committee recognises the criteria of allocation of funds but recommends more research in this regard. Treasury and FFC should reach a common understanding of the uniqueness of the Province. Heavy-duty trucks in transit on national and provincial roads in our province, contribute to its dilapidation. Proper research on the contribution of our province to the National GDP should be conducted. Mining happens in our province whilst the revenue collection happens in other provinces where the head offices of such mining companies are located.

On Conditional grants: We urge National Treasury to roll out an improved accessing process in order for provinces and local government to obtain grants;

On Poverty Relief grants: we support the phasing out of the grant and support the alternative Poverty Alleviation Programmes, which are more permanent and sustainable. The programmes need to function in a co-ordinated fashion.

Different departments, which issues Poverty Alleviation grants, should interact to ensure proper co-ordination;

National Treasury must develop a mechanism to ensure that grants to Municipalities be used for the intended purpose; further to relay information in this regard to Provinces to enable them to exercise proper oversight.

MS PEGGY HOLLANDER

DEPUTY SPEAKER OF NORTHERN CAPE PROVINCIAL LEGISLATURE

Appendix 14

Final Mandate of the Western Cape Provincial Parliament

Report of the Standing Committee on Finance and Economic Development, on the Division of Revenue Bill [B5B -2002] (NCOP), dated 14 March 2002, as follows:

The Standing Committee on Finance and Economic Development, having considered the subject of the Division of Revenue Bill [B5B -2002] (NCOP), referred to the Provincial Parliament in terms of the rules of the National Council of Provinces (NCOP), begs to report that it confers on the Western Cape's delegation in the NCOP the authority to support the Bill.

MR H G VAN RENSBURG

CHAIRPERSON

Appendix 15

GAUTENG LEGISLATURE

FINANCE COMMITTEE

VOTING MANDATE ON THE DIVISION OF REVENUE BILL [B5B-2OO2]

15March 2002

The Chairperson of the Finance Committee, Ms J L Fubbs, tabled the voting mandate on the

Division of revenue Bill as follows.

1. Process followed

The Standing Committee on Finance deliberated on the Division of Revenue Bill (B5B - 2002), a

Section 76 Bill. which was introduced in the National Council of Provinces and tabled a negotiating mandate on Tuesday 11 March 2002.

- The Finance Committee deliberated on the Division of Revenue Bill and satisfied itself that the Bill addressed the constitutional requirements for an equitable division of revenue, taking cognizance of economic disparities and addressing the fiscal capacity and efficiency of provinces and municipalities.

- Member UD Moiloa who was nominated to attend hearings on the Division of Revenue Bill at the NCOP briefed the Committee on Thursday 07 March 2002.

- On Monday 11 March 2002, the Chairperson of the Select Committee on Finance, Ms DQ

Mahlangu who is also the Gauteng permanent delegate to the NCOP, briefed the Committee on the deliberations of the Select Committee.

- The Finance Committee also took cognizance of the support by the Member Of Executive Council for Finance and Economic Affairs in Gauteng, to the Division of Revenue Bill

- The Voting Mandate on the Division of Revenue Bill [B5B - 2002], was adopted by the Finance

Committee on Thursday 14 March 2002.

2. Principle of the Bill

The principle of the Bill is informed by Section 214(1) of the Constitution and the Intergovernmental Fiscal Relations Act, 1997, to provide for the following:

- the equitable division of revenue raised nationally among the national, provincial and local spheres of government

- the determination of each province's equitable share of the provincial share of that revenue;

- any other allocations to provinces, local governments or municipalities from the national

government's share of that revenue, and any conditions on which those allocations may be made; and

- section 214(2) of the Constitution requires that the Bill nay only he enacted after the provincial and local spheres of government and the FFC have been consulted, and after any recommendations of the FEC have been considered.

3. Detail of the Bill

All of the concerns raised by the Finance Committee in the negotiating mandate on the Division of Revenue Bill were addressed The detail and the negotiating positions adopted by the committee with regard t') the douses raised in the negotiating mandate were also covered. These were Clauses 8,18, 20, 21 and 28. However1 the responses by Treasury to the Auditor-General's comments on douse 30 was not raised as a concern.

The role and function of the Auditor-General's Office in respect of ensuring compliance with the requirements of the Public Finance Management Act (PFMA) is pertinent The Bill, implementing as It does the requirements of the PFMA, takes a significant step in promoting transparency and accountability of government spending.

The bill also set out specific obligations on the reporting of conditional grants, to be included in the financial reports submitted to the auditor-general for audit. The Finance Committee studied the concerns raised by the Office of the Auditor-General and Welcomes the amendments particularly those of clauses 8.18(2), 20,27(3), 21(5) and 28(3).

4 .Conclusion

The Standing Committee on Finance supports the principle and the detail of the Division of

Revenue Bill [B5B - 2002] as negotiated in the meeting of the Select Committee on Wednesday

13 March 2002 at the NCOP.

5. Voting Mandate

In terms of Section 65 of the Constitution, the Finance Committee recommends that the House confer authority on the Gauteng Provincial Delegates to the NCOP to vote in favour of the Division of Revenue Bill [B5B - 2002].

J L Fubbs

Chairperson: Finance Committee

Appendix 16: Committee Report on the Division of Revenue Bill
The Select Committee on Finance, having considered the subject of the Division of Revenue Bill [B 5B - 2002] (National Assembly - sec 76), referred to it, reports the Bill with amendments [B 5C - 2002].

The Committee reports further, as follows:

A. Introduction
The Select Committee on Finance held hearings on the 2002-03 Division of Revenue Bill from 6 March 2002 to 8 March 2002. The Committee wishes to express its appreciation to all the participants for their submissions and contributions during the hearings. The Committee would also like to express its appreciation to the National Treasury, the chairperson of the Financial Fiscal Commission and their staff, SALGA, the Office of the Auditor-General, Directors-General, Deputy Directors-General and Chief Financial Officers from national departments for their submissions and contributions. Written presentations submitted form part of the records of the Committee Section.

B. Background information
The Division of Revenue, as set out in section 214 of the Constitution, provides for the equitable distribution of revenue raised nationally among the national, provincial and local spheres of government to ensure that provinces and municipalities are able to provide basic services and perform the functions allocated to them. Additional revenue raised by provinces or municipalities may not be deducted from their share of revenue raised nationally or other allocations made to them out of national government revenue (section 227(2) of the Constitution). Provinces and local government may receive other allocations from national government revenue, either conditionally, unconditionally or in kind (section 227(1)(b) of the Constitution). Revenue shared amongst the three spheres of government includes revenue collected at national level, plus borrowing, but excludes funds for the Reconstruction and Development Programme and social security funds.

2. Overview of Division of Revenue Bill 2002-03
The 2002-03 Division of Revenue Bill continues to focus on the broad policy priorities of the government, with emphasis on public spending and reduction of poverty to alleviate inequality and vulnerability. It shows strong increases in the equitable share allocations to both provinces and municipalities, recognising their critical role in the delivery of social development, basic household services and infrastructure.

Rebuilding local government and meeting commitments to ensure free basic service delivery remains the government's key priority, with municipal infrastructure financing receiving substantial increases in allocations over the next three years. The Division of Revenue Bill takes account of the judgement passed by the KwaZulu-Natal High Court to include equitable share allocations for district category C municipalities in the additional allocations to local government.

Necessary steps are taken to improve financial management capacity, accountability and improved quality of public service delivery across all spheres of government. It, however, became clear in the hearings that the ongoing transformation of local government and proposed new policies and legislation have created some uncertainty in the municipal finance environment. These include the Municipal Finance Management Bill.

3. National Treasury
In its submission the National Treasury reported real growth in non-interest government spending of 4,1% a year over the MTEF period. Additional allocations for government spending excluding debt service costs and contingency reserve increase by R13,4 billion in 2002-03 and by R17,9 billion in 2003-04.

Positive real growth in all three spheres of government is reported (an inflation rate of around 6,5% is assumed). The national allocation increasing to R6,6 billion (nominal terms) in 2002-03 and R8,5 billion (nominal terms) in 2003-04, while provincial allocation shares increase to R5,3 million (nominal terms) and R7 billion (nominal terms) and local government share increase by R1,6 million (nominal terms) and R2,4 billion (nominal terms) over the same period. The Treasury reported a marked improvement in provincial financial management and improved spending on social infrastructure. Certain departments have shown steady progress in meeting the requirements of the Public Finance Management Act, 1999 (PFMA). There was strong support from the Office of the Auditor-General for the government's endeavours to improve financial management measures.

The table below shows the revised and medium term estimates percentage shares in the vertical division of revenue amongst the three spheres of government.

VERTICAL DIVISION OF REVENUE - 2002 BUDGET
---------------------------------------------------------------------------------------------------------------------------------------------
R billion 2000/01 2001/2/01 2002/03 2003/04 2004/05
Outcome Budget Revised Medium-term estimates
---------------------------------------------------------------------------------------------------------------------------------------------
National allocation 73,142 84,286 87,317 96,106 103,307 109,911
Provincial allocation 108,904 117,387 121,206 132,420 142,844 152,363
---------------------------------------------------------------------------------------------------------------------------------------------
Equitable share 98,398 106,260 107,460 119,452 128,466 137,089
Conditional grants 10,506 11,127 13,745 12,967 14,378 15,274
---------------------------------------------------------------------------------------------------------------------------------------------
Local government
allocation 5,576 6,506 6,552 8,580 10,235 10,854
---------------------------------------------------------------------------------------------------------------------------------------------
Equitable share 2,315 2,618 2,618 3,852 5,021 5,461
Conditional grants 3,261 3,888 3,934 4,728 5,213 5,393
---------------------------------------------------------------------------------------------------------------------------------------------
Allocated
expenditure 187,622 208,179 215,075 237,106 256,386 273,128
---------------------------------------------------------------------------------------------------------------------------------------------
Percentage shares
National 39,0% 40,5% 40,6% 40,5% 40,3% 40,2%
Provinces 58,0% 56,4% 56,4% 55,8% 55,7% 55,8%
Local government 3,0% 3,1% 3,0% 3,6% 4,0% 4,0%
---------------------------------------------------------------------------------------------------------------------------------------------

The national share remains stable from 40,6% of nationally collected revenue after the top slice in 2001-02 to 40,5% in 2002-03 to 40,2% in 2004-05. The provincial share remains static over the MTEF period, it grows by 7,9% a year over the medium-term expenditure framework. For 2001-02, 2002-03, the provincial share decreases from 56,4% to 55,8%. This is partly due to the one-off R2 billion for social security grants, the provincial supplementary grant administered by the National Treasury being phased out.

Two changes have been made in the equitable share formula. Firstly, the welfare weighting has increased by 1% at a cost of economic weighting, to take account of the increase of welfare spending in provincial budgets. Secondly, the education enrolment data has been updated. The seven components of the equitable share formula as commented upon by the FFC and recommended by the government include:

Education share 41%
Health care 19%
Social security share 18%
Basic share 7%
Backlog component 3%
Economic component 7%
Institutional component 5%

A comparison of the 2001 actual spending share to the equitable share formula shows that the education share is 2% less than the formula; the health care share 5% more than formula (tertiary services funded from conditional grants and 19% share in formula higher than share for provinces with no academic hospitals), and the social security share is 1% more than formula.

In 2002-03 local government has the fastest growing allocations from the pool of nationally collected revenue. The 2% budgeted share for 2000-01 is doubled in the 2002-03 Division of Revenue Bill. Assistance for municipalities grows by 18,3% a year in nominal terms. Local government allocation includes support for water and sanitation, electrification, free basic services and local economic development. Though static over the MTEF period, local share increases to 4% in 2002-03 from 3,6% in 2001-02.

Reform of municipal finances is under way. Among the key elements of the local government transformation is the Municipal Finance Management Bill (MFMB), three-year budgeting, the codifying of municipal accounting practices, a framework for municipal borrowing and new financial reporting standards.
Priorities in the 2002-03 Division of Revenue Bill include the following:

* Extension of basic municipal services

* Higher social grants and increased take-up of child support grant

* Social, municipal, housing and economic infrastructure

* Bolster health system against the impact of HIV/AIDS

* Extending tertiary health services and training of medical personnel

* Early childhood education programme

The 2002-03 national priorities include the restructuring of the SA Post Office, the restructuring of the Unemployment Insurance Fund, currency depreciation and fight against crime. Provincial priorities include social security grants, education, capital investment and maintenance. Local government priorities include infrastructure and capacity-building.

Future changes to fiscal framework include the following:
* The Provincial Tax Regulation Process Act, 2001, that will take effect in the 2003-04 Budget to improve the fiscal capacity of provinces

* The evolution of a borrowing framework for provinces and local governments, subject to further discussion by the Budget Council

* The transformation process for local government is still in progress

* The completion of merging municipalities for 2003-04 municipal budgets

* The finalisation of the division of functions between category B and C municipalities

4. Conditional grants
(a) Overview

The general purpose of conditional grants is to fund the provision of national priority programmes, compliance with norms and standards as set out by the national government and cross-border spill-overs. The criteria used for each grant is different, depending on the purpose of the grant.

Overall spending in conditional grants geared towards operating activities has improved. While there seems to be improvements in spending on conditional grants designed for infrastructure, underspending or no spending is still reported in respect of certain grants, (e.g. the HIV/Aids grant and the Primary School Nutrition grant in certain provinces). The decline in the Primary School Nutrition grant from -6,19% in 2001-02 to -6,10% in 2002-03 reflects previous underspending and poor delivery. Poor planning and implementation of projects seems to be the major problem. Changes in priorities, delays in the development of business plans and long tender processes seem to be the factors contributing to low expenditure. Further delays are reported in the transfers of funds between the national government and provincial governments.

During 2001-02 spending did not occur in certain provinces in the Early Childhood Development grant as a result of delays in tender processes, the setting up of the necessary system and the delays in the transfer of funds to the sites as bank accounts have not been opened yet. Many national departments have measures in place to monitor and evaluate the performance of projects. Most departments hope to overcome these bottlenecks in the near future.

The HIV/AIDS grant to the three departments - Health, Education and Social Development - have been enhanced to strengthen the HIV/AIDS strategic plan. The Early Childhood Ddevelopment grant that was introduced in 2001-02, is be phased into the equitable share in 2003-04. The roll-out of the grant, which is to be phased in over 10 years, will mainly be funded from the provincial equitable share. Most grants in the Health Department have been renamed. The provincial supplementary grant administered by the National Treasury has been phased out, the funds will be transferred to the equitable share.

(b) Financial and Fiscal Commission (FFC)

The FFC notes the importance of conditional grants as an instrument for speeding up access to basic services, given national norms and standards, as some national departments have no clearly defined norms and standards that would facilitate the efficient monitoring of how far provinces are delivering on national priorities. The FFC's position on the use of conditional grants is that they should be limited and should promote constitutional intentions with respect to decentralisation and the principles of good governance applicable to subnational governments. It is the view of the FFC that accountability for conditional grants should be shared between the national government and the recipient government in the sense that they remain part of the national equitable share, for which the national government is accountable.

The FFC further reported improved compliance in respect of the PFMA reporting and disclosure requirements with regard to Provincial Conditional Grants. It is estimated that the proportion of conditional grant value accounted for has increased from 63% to 98% to reveal the extent of underspending. Over the past two years underspending on Provincial Conditional Grants has increased from 5% to 16%. This may according to the FFC reflect management or systems inefficiencies. Underspending is high in respect of infrastructure grants and transitional and special allocation grants, but has declined in the social sector. Slight overspending for all health and welfare grants, except for HIV/AIDS, is predicted.

(c) SALGA
SALGA welcomed the invitation to address the Committee on some of the difficulties they experience. SALGA's view is that despite the transition and transformation of local government many are not and will not be sustainable in fiscal and financial terms. A number of municipalities are still faced with financial problems associated with inefficient service delivery patterns and high levels of poverty amongst their communities. Others suffer because of ineffective management systems and lack of administrative capacities, coupled with inefficient budget systems.

SALGA's contention is that the Intergovernmental Fiscal Relations Act, 1997, be reviewed with a view to include organised local government in the Budget Council in view of the consolidation of grants to local government and the increasingly critical role that local government plays in the improvement of the quality of lives of the poor. SALGA recommended that they be given a practical role to play in the fiscal framework associated with conditional grants design and management of conditional grants by various line departments. The non-payment of services still plays a major role in hampering effective financial sustainability.

SALGA called on for a distinction to be made between the indigent policy and the provision of free basic services. They further echoed their support of the recommendations of the FFC of 2001-02.

(d) Other cross-cutting issues

(i) Lack of capacity-building and section 154 of Constitution
Section 154 of the Constitution requires that the national government and provincial governments support and strengthen the capacity of municipalities to manage their own affairs, to exercise their powers and to perform their functions. A strong point was made that local government should be seen as a sphere of government that is responsible for key services impacting on the lives of all South Africans. Submissions from SALGA suggested that funds from the national government should be directly transferred to local government rather than via provinces, or else provincial governments must clearly indicate in their budgets how much provision has been made for local government capacity-building.

Most departments raised concerns over capacity-building in the newly established municipalities, after the 5 December 2000 elections. A serious problem with conditional grants seems to be the lack of capacity at provincial and municipal level to administer and monitor them.

(ii) Division of Revenue Framework
There is concern over the volume of regulation and legislation with which the under-capacitated municipalities have to comply. The perceived over-detailed nature of these regulations and the unrealistically short compliance periods are perceived as problematic.

(iii) Lack of intergovernmental co-ordination
Departments called for better co-ordination between different departments. The transfer of functions between national and provincial departments and local government needs to be properly communicated as they have financial implications. Funds transferred must include service and administration costs. A clear provision needs to be made for the maintenance of the infrastructure that is being transferred. For example, the electricity restructuring from the national government to local government may have huge implications for the local government, as it might lower municipal revenue and adversely impact on fiscal capacity. Regarding the Municipal Infrastructure Conditional grant (MIC), the Department of Water Affairs and Forestry raised concerns on the clarity of responsibilities between the national department of local government and other provincial departments.

(iv) Elimination of small grants
A suggestion was made that small conditional grants must be eliminated or converted to grants in kind. Conditional grants that will eventually be phased out, should be included in the equitable share to provinces or local government. Small grants are said to be disproportionate administrative burdens.

(v) Compliance
Most departments that appeared before the committee, have measures in place to ensure that they fully comply with the requirements of the PFMA. Reduction in the number of grants to lower administrative burden while streamlining decision-making and consultation is important.

(vi) Allocation of powers and functions for category B and C municipalities
The shifting of powers and functions between these two categories of non-metropolitan municipalities is a significant challenge for the Department of Provincial and Local Government. The division could have wide-ranging fiscal, service delivery and personnel implications. The view of SALGA is that powers and functions must be allocated to the category of municipality where they will be administered effectively. Nonetheless, the department, in conjunction with key stakeholders, are doing all in their power to determine an appropriate allocation of functions in each category. The department hopes to finalise the powers and functions for these categories by April 2002.

5. Conclusion
While initiatives made by the National Treasury on working with municipalities and provincial governments to meet their developmental goals, as set out in the Constitution, were acknowledged in the hearings, a lot of pressures and challenges still remain.

Challenges that still need to be addressed in the intergovernmental system of South Africa, include:

* The transition and transformation process in the local government sphere

* A more supportive system to both provinces and local government to enhance their capacity to spend, manage and implement projects

* An improved revenue capacity and sound financial management for provinces and local government

* The impact of restructuring of the electricity distribution industry on the structure of local government finances

* Finalising the powers and functions of category B and C municipalities

* A need to strengthen accountability and transparency and increased efforts to improve reporting

* Introduction of tight measures to deal with departments that have not implemented the PFMA

* Improving the quality, quantity and reliability of information used in the division of nationally raised revenue

* Better co-ordination between various national departments

* Clear grant policy framework

* A more predictable and stable fiscal environment that will make municipalities more attractive to private lenders and investors.

 

 

 

 

 

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