Division of Revenue Bill [B4-2011]: technical corrections and final mandates

NCOP Appropriations

05 April 2011
Chairperson: Mr T Chaane (North West, ANC)
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Meeting Summary

The Committee was briefed on technical amendments to the Division of Revenue Bill which were to sort out errors in the Bill dealing with grant allocations to municipalities. The Committee then considered the final voting mandates from the provinces for the Bill and approved the Bill with the  amendments proposed by the Department of Energy but not those proposed by the Department of Cooperative Governance and Traditional Affairs and consultants, Hunter Van Ryneveld.

Hunter Van Ryneveld, a private entity, briefed the Committee on the proposed amendments dealing with  public transport and noted that these were largely technical. The company worked with national and city governments on municipal issues, including finance, inter-governmental relations, transport. It submitted the proposed amendments as part of the team working on the new Cape Town Integrated Rapid Transit project. National government subsidised public transport through capital and operating commuter rail subsidies, a special grant for Gautrain, a Public Transport Operating Grant, Public Transport Infrastructure and Systems Grant and the minibus taxi recapitalisation programme. The proposed amendments dealt with the Public Transport Operating Grant and the Public Transport Infrastructure Systems Grant. Currently there was a move to shift all public transport responsibilities from the provinces to the cities. National government had concluded that the transfer from province to city should not happen piecemeal. There had to be a total transfer. It was decided that the Public Transport Infrastructure Systems Grant would be used to fund the Bus Rapid Transport system. The proposed amendment for the Public Transfer Operating Grant read as follows:  “Where a provincial public transport service was replaced by a municipal run integrated public transport network service, the province must assist the transition by excluding the applicable routes from existing provincial contracts, calculating the subsidies paid in respect of this route and assist the municipalities in negotiating for the application of the subsidies.” There were three additional sub-clause changes to be included if the proposed amendment was accepted.

The second amendment related to the Public Transport Infrastructure Systems Grant. The view of National Treasury and Department of Transport was that the grant could be partially used for operating subsidies but cities must at least cover the direct operating costs of running the vehicles, preferably from fare revenue. Treasury had confirmed that the PTISG wording intended to express this, but the actual wording could be read as giving it another meaning. The proposed amendments, which the relevant national departments agree on, were intended to address this. One of the forms of the subsidy was to pay the capital costs of vehicles from PTISG. Where private operators owned the vehicles they had an additional incentive to maintain them, so there was an argument that they should be transferred to operators. National Treasury wanted to avoid the risk of transfer of the buses in a way that risked the interests of the public sector. However, National Treasury had previously agreed to arrangements other than ownership remaining with the municipality. The amendment was aimed at achieving consistency with these agreements.

The Department of Cooperative Governance and Traditional Affairs explained the next proposed amendment to the Bill which was to fix an error with the Municipal Systems Improvement Grant. NW397 was inadvertently omitted from the allocation list for a Municipal Systems Improvement Grant. NW397 was a newly created municipality in the Mangaung area. There was no name envisaged as yet so it was referred to as NW397. COGTA was proposing that NW397 should be allocated funds for the 2011/12 period and this should be deducted from grants already allocated to the other municipalities. The proposed adjustment was that all municipalities which had a grant allocation of R790 000 should have it reduced to R780 000. The deducted amounts from these municipalities should then be allocated to NW397. It requested that the Committee approve this.

The Department of Energy explained seven errors to do with the Electricity Demand Side Management grant and Integrated National Electrification Programme grant allocations in the Bill. It proposed corrections to amounts that had been wrongly allocated to certain municipalities.

The Committee discussed the difference between ‘in consultation with’ and ‘after consultation with’ and asked which phrasing was preferable for the proposed amendment to the Public Transport Operating Grant. The Committee decided not to accept the proposed amendments from Hunter Van Ryneveld until the transition for the transfer of public transport from the provinces to the cities was in full swing. The Committee rejected the COGTA request for the adjustment to accommodate NW397 because this would require the entire Fiscal Framework to be significantly changed and other municipalities that would have their Municipal Systems Improvement Grant reduced have already done their planning based on the allocated amount.

The Committee was disappointed with the number of errors in the allocations of the Integrated National Electrification Programme (INEP) and the Electricity Demand Side Management grants. The Committee was worried that about the consequence of these errors as municipalities had already completed their planning and provincial legislatures had voted on the Division of Revenue Bill based on the original incorrect allocations.

The final mandates from the provinces which were in favour of the Division of Revenue Bill, were the Eastern Cape, Western Cape, Northern Cape, Limpopo, Mpumalanga, KwaZulu Natal. The Free State was not opposed of the Bill but it still had to sit and vote on it. Gauteng had not yet submitted its final mandate. The Committee approved the Division of Revenue Bill without the proposed amendments.

Meeting report

Proposed Amendments to Division of Revenue Bill on Public Transport Grants
Mr Philip Van Ryneveld, Director at Hunter Van Ryneveld (Pty) Ltd, said that his company worked very closely with local and national government on finance, transport and inter-governmental relations. The proposed amendments were on public transport, which was a huge issue in South Africa. Currently national government subsidised public transport through capital and operating commuter rail subsidies, a special grant for Gautrain, the Public Transport Operating Grant (PTOG), the Public Transport Infrastructure and Systems Grant (PTISG) and the minibus taxi recapitalisation programme.

Amendments were proposed to the PTOG and PTISG wording in the Bill and were largely technical. Currently there was a move to shift all public transport responsibilities from the provinces to the cities. Funding was also being shifted from long standing provincial contracted arrangements to the Integrated Public Transport Network (IPTN). There was a whole new vision on how public transport should function. National government had concluded that the transfer of the public transfer system from a province to a city should not happen piecemeal, there had to be a total transfer. The devolution of public transport to the city was very complicated and carried a financial risk for a city. It was thus decided that the Public Transfer Operating Grant should subsidise the Bus Rapid Transport (BRT) system. The proposed amendment for the Public Transfer Operating Grant read as follows: 
“Where a provincial public transport service was replaced by a municipal run integrated public transport network service, the province must assist the transition by excluding the applicable routes from existing provincial contracts, calculating the subsidies paid in respect of this route and assist the municipalities in negotiating for the application of the subsidies.” There were three additional technical sub-clauses to be included if the proposed amendment was accepted.

What was ideal was for the old funding that existed under the provinces to continue when public transport was transferred to the cities. The amendment was to give this process a push in the right direction. The process could be helped by including conditions in the Public Transport Operating Grant, which would require the provinces to assist with the transition in specific ways and also the subsidies, which would be released by the phasing out of the provinces, should be used in consultation with the cities. The proposed amendment for the PTOG read as follows: “Where a provincial public transport service was replaced by a municipal run integrated public transport network service, the province must assist the transition by excluding the applicable routes from existing provincial contracts, calculating the subsidies paid in respect of this route and assist the municipalities in negotiating for the application of the subsidies.” 

The Committee was requested to accept the amendments. If accepted, then this should be done with three additions. The first addition was the inclusion of “public transport services provided by a provincial department of transport” instead of “a provincial public transport service”.  The second addition was to leave out “assist the municipalities in negotiating for the application of the subsidies” and replace it with “determining the appropriate application of the subsidies in consultation with the relevant municipality”. The third addition was to add “taking all other reasonable steps as may be necessary”.

The second amendment related to the Public Transport Infrastructure Systems Grant, which was the main mechanism for implementing the Public Transport Strategy and Action Plan which included creating Integrated Rapid Public Transport Networks and asymmetric devolution to cities in terms of the National Land Transport Act. The view of National Treasury and DoT was that the PTISG could be partially used for operating subsidies.
National government had taken the view that cities must at least cover the direct operating costs of running the vehicles, preferably from fare revenue. Direct operating costs were regarded as ‘fuel, labour and vehicle maintenance’. Treasury had confirmed that PTISG wording intended to express this, but the actual wording could be read as giving it another meaning. The proposed amendments, which the relevant national departments agree on, were intended to address this.

One of the forms of subsidy being implemented by national government was to pay the capital costs of vehicles from PTISG. Where private operators owned the vehicles they have an additional incentive to maintain them, so there was an argument that they should be transferred to operators. National Treasury wanted to avoid the risk of transfer of the buses in a way that risked the interests of the public sector. However, National Treasury had previously agreed to arrangements other than ownership remaining with the municipality. The amendment was aimed at achieving consistency with these agreements.

Discussion
Mr B Mashile (ANC; Mpumalanga) requested clarity on the difference in interpretation and consequences, in the use of ‘in consultation with’ and ‘after consultation’. Which position was better, especially for the municipalities, which were referred to in the PTOG proposed amendment?

Mr A Lees (DA; KZN) also referred to the PTOG amendment and said that “appropriate application” was wide and open to all sorts of interpretation. The wording ‘taking all other steps as may be necessary’ prompted one to ask ‘as may be necessary’ for what?

Mr Van Ryneveld said that the difference in law between ‘in consultation with’ and ‘after consultation’ was the former meant that there had to be agreement between parties and the latter meant that there should be consultation but consensus was not mandatory. The current wording was stronger and preferable. On the question about ‘taking all other steps as may be necessary’; there used to be policies that the provinces were applying that led to overspending of the PTOG. This continued until national government did not have any money and the provinces did not pay service providers who subsequently took national government to court insisting that the PTOG was a national grant. The service providers won the case and national government had to pay. There had been a shift in the net subsidy of services to the gross subsidy of services. Subsidising was now on a per kilometre basis and not per passenger. There was a new argument that the new system was subsidising every kilometre by 20% only. There was a dispute between the existing subsidised bus services, the city and the province. In trying to work out the disputes amongst the parties, the amendment had included the words ‘taking all other steps as may be necessary’ and ‘in consultation with’.

Mr Lees followed up by saying that it would then be appropriate to use ‘in consultation with’ given the afore-mentioned circumstances.

Mr Mashile asked which phrase would be better for the purposes of resolving a dispute or where there was a deadlock in negotiations.

Mr Van Ryneveld replied that the wording in the proposed amendment was stronger as the municipalities would have legal recourse to challenge the provinces.

Ms Wendy Fanoe, Chief Director: Intergovernmental Policy and Planning for National Treasury, added that there had not been an actual fiscal transfer to date from the provinces to the municipalities. It was difficult to preempt this process within the Division of Revenue Bill and grant framework. The conditional grant framework had to be read with clause 17(1)(c) and clause 18(3) of the Division of Revenue Bill. It was important to note that National Treasury did not sign off on a conditional grant; the national transferring officer did this, which was the DoT in this case. Where it was a provincial grant it was sent to the provincial treasuries for their inputs. Where it was a grant that had implications for municipalities and provinces, there had to be adequate protection for the provinces and the municipalities. It was proposed that the Committee keep the essence of the proposed amendments. The problems arose with the sub-clauses for the PTOG proposed amendment, which had words such as ‘applicable’, which were open to interpretation. The DoT could put together a document that addressed this and which proposed suitable sub-clauses.

Municipal Systems Improvement Grant errors in the Division of Revenue Bill
Dr Plaatjie Mahlobogoane, Senior Manager: Municipal Grants for Department of Cooperative Governance and Traditional Affairs (COGTA), focused on the Municipal Systems Improvement Grant (MSIG). The proposed amendment related to the allocations that should be made. The MSIG was a conditional grant directed at district municipalities and selected municipalities. It was for the purposes of supporting municipalities in implementing new systems. COGTA was of the view that there was not any scientific formula for allocating the grants; there was thus a discrepancy in the amounts allocated to municipalities ranging from R780 000 and R1.2 million. Further there was no allocation for municipality NW397 which was inadvertently omitted from the allocation list. COGTA was proposing that NW397 should be allocated funds for the 2011/12 period and this should be deducted from grants that were already allocated to other municipalities.  It was requested that the Committee should approve this request.

Discussion
Mr Mashile asked what sort of proposal had COGTA put forward to Treasury given that ‘there was no scientific formula for allocating the grants’. COGTA had a responsibility to make proposals to National Treasury and the Financial and Fiscal Commission (FFC) rather than complaining to the Committee.

Dr Mahlobogoane said that it was not meant to be a compliant, it was just to highlight that the allocations made to municipalities were different.

Mr Lees said that he was not sure what the Committee was being requested to do, what were the proposed adjustments/reallocations that the Committee was being asked to approve?

Dr Mahlobogoane replied that the submission was about the changes that had to be made. The minimum allocation for some municipalities was R790 000, with the adjustment approved, it would be R780 000. COGTA was proposing that some funds should be taken away from some municipalities and given to NW397.

Ms Fanoe confirmed that there was no allocation for the MSIG grant for NW397, the only option was to deduct from the other municipalities, as there was no alternative funding.

Mr C De Beer (ANC; Northern Cape) asked, if Treasury re-allocated unspent MSIG grants in another form or allocation, what happened to unspent MSIG grants as in certain municipalities there were rollovers, which were approved by Treasury in December and January.

Mr Mashile asked what the problem would be if the allocation was not provided.

The Chairperson asked which municipalities should have their funds reduced to fund the grant for MSIG.

Dr Mahlobogoane said that NW397 was two municipalities that were amalgamating hence there was no name for it as yet. There could be some funding challenges around the amalgamation. All the municipalities that had received R790 000 should have their amounts reduced to R780 000 to fund the MSIG for NW397.

The Chairperson asked if Treasury has finalised this matter.

Ms Fanoe replied that there were going to be specific challenges that the newly amalgamated municipality was going to have to deal with. It was a good argument therefore that the municipality had to have a MSIG. The reduction of the grant for other municipalities could be done in a way that funds were taken from those that had similar obligations or for funds to be reduced on a proportional basis. 

Mr Conrad Van Ass, FFC Programme Manager: Budget Analysis, said he did not understand why there was no allocation for NW397.

The Chairperson asked the Committee to note this matter.

Department of Energy (DoE) presentation on EDSM and INEP Grants
Dr Wolsey Barnard, DoE Executive Director: Integrated National Electrification Programme (INEP), explained the amendment to do with the Electricity Demand Side Management (EDSM) grant. Under the EDSM grant there was an incorrectly placed allocation of R54 000, which was placed in the line meant for Mutelo municipality. This was in fact meant for Musina municipality.  The amount was the same just in the wrong line. The second proposed amendment was for a similar situation where the allocation was in the line for Sedibeng District Municipality but was in fact meant for Emfuleni Local Municipality.

Mr Mohau Nketsi, DoE Senior Manager: Electrification Planning, explained the proposed changes to the INEP grant. A direct grant allocation had been incorrectly reflected to Mookgopong Local Municipality instead of Modimolla Local Municipality. When the allocations were submitted to Treasury some were misplaced. Ingwe municipality in KwaZulu Natal (KZN) should have had R13.2 million which was misplaced. There was a misallocation for Nkangala District Municipality, which was meant for Dr JS Moroka in Mpumalanga. In Limpopo there was a misallocation, which should have gone to Aganang municipality but instead went to Capricorn District Municipality. In the Northern Cape, there was an allocation which went to John Taolo Gaetsewe Municipality but was meant for Ga-Segonyana.

Discussion
Mr M Makhubela (COPE; Limpopo) said that he did not understand the EDSM grant shift from Mutelo to Musina, as it was re-allocated from a rural municipality to an urban one.

Mr P Zulu (IFP; KZN) said that there were a lot of district municipalities in KZN, which were in dire straits. What happened? Why were they in such a state?

Mr Mashile said that it seemed like there was a lack of communication between departments hence the errors. The Department of Energy should clarify why there were no allocations for some municipalities, how did they work this out?

Mr S Montsitsi (Gauteng; ANC) asked if Treasury had made certain grants available to indigents. Were they included under the EDSM or INEP grants or would there be another grant?

The Chairperson said that some of the errors were egregious and one would not expect departments to do this. All these changes would cause unnecessary confusion, as the municipalities would base their planning on what was in front of them.

Mr Mashile asked if the relevant municipalities had been engaged with on the changes and what was their reaction.

Dr Barnard replied that none of the allocations under the EDSM and INEP were made without consulting the municipalities; therefore the municipalities were aware of any changes. The EDSM grant was an allocation to assist the country in decreasing its total consumption of energy levels. The targeted municipalities were those that had a high consumption rate and this would typically be those in the urban areas. 

Mr Nketsi said that the presentation covered only adjustments to the errors in the Bill and not the figures for the allocations hence most municipalities were not mentioned in the presentation document. The INEP was in itself a programme based on providing for indigents. It was aimed at the poor and previously disadvantaged.

Dr Barnard seriously acknowledged the concern from the Chairperson. There was not bad communication between the Department and Treasury and this would not happen again.

Ms Fanoe added that there had been a lot of interaction between Treasury and the Department of Energy. The current issue the two departments were grappling with was that one of the reasons why the INEP grant was set up was to avoid rolling blackouts. It was earmarked to end for the 2011/12 period and now it was a question of whether the grant should continue or not. The departments also had to be more rigorous when it came to allocations.

Mr Van Ass said that it would have been useful if the Department of Energy had included figures for bulk connections as well as beneficiaries per municipality and consumption per municipality in the presentation. The funding channels could have also been distinguished because currently it looked like there were municipalities which were not receiving any funding at all.

Final Voting Mandates from the Provinces
The Chairperson asked for the final mandates from the provinces on the 2011 Division of Revenue Bill.

The Members read out the final mandates from the provinces which were in favour of the Division of Revenue Bill, these were the Eastern Cape, Western Cape, Northern Cape, Limpopo, Mpumalanga, KwaZulu Natal. The Free State was not opposed of the Bill but it still had to sit and vote on it. Gauteng had not yet submitted its final mandate.

Committee Report on the Division of Revenue Bill
The Chairperson said the draft report had to be considered on a page-by-page basis. He referred the Committee to the Division of Revenue Bill under clause 14(3) which read: “National Treasury may at any time, after consultation with or at the request of a transferring officer revise or amend a framework published in terms of subsection (1) or (2) to correct any error or omission as well as clause 14(4) which read: An amendment, revision, virement or re-allocation takes effect on publication thereof in the Gazette, with the exception of a Schedule 9 Grant.”  If departments picked up errors during the finalisation process, these should be raised via the Committee. In this meeting some departments had raised technical corrections. The difficulty was that the provinces had already completed their final mandates. The changes could only come into effect once the Bill was finalised as provided for in clause 14(3).

Mr S Mazosiwe (ANC Eastern Cape) supported the Chairperson. The Committee should be made aware of all changes before the Committee was finalising the Bill.

Mr Mashile said that any changes proposed by Treasury would have the effect of changing the Bill which was in front of the Committee - but not in front of the provinces. Notwithstanding what the Chairperson had said, once the Bill became an Act, Treasury could not just willy-nilly change figures here and there. There was a process that had to be followed under those circumstances. The Committee had received final mandates from provinces based on the figures in the Bill. The provinces were not aware that there were proposed changes which would affect ordinary citizens on the ground.

The Chairperson said that in the past changes had been made to the Bill after it became an Act as provided for under clause 14. It was acknowledged that corrections to a Bill were inevitable due to fraud, human error and mistakes. The number of errors this year was alarming. Departments should not try and create side avenues via Treasury to effect changes to the Division of Revenue Bill. All proposed amendments should be done via the Committee, and there should be an additional clause inserted in the Bill that prohibited this.

Mr Mazosiwe added that the Fiscal Framework limited the Committee’s role to amend it in a way that would impact the framework. This was a difficult process. It should be remembered that there was no process that allowed Parliament to amend the Division of Revenue Bill in the past, hence the clause.

Mr D Bloem (COPE; Free State) said that this was a serious matter and legal advice should be sought because the provincial representatives could land up in serious trouble with their provincial legislatures. 

Mr Mazosiwe said, in response to Mr Bloem’s comments, the matter had already been put to rest and it should not be delayed. All that needed to be done was for any grey areas in the Division of Revenue Bill to be ironed out.

The Chairperson gave the Committee twenty minutes to read through its report on the Division of Revenue Bill.  The Chairperson pointed out that on page two the purpose of the report should mirror the purpose of the Bill.

Mr Montsitsi referred to the last paragraph on page three where it stated that the urban development grant meant for metropolitan municipalities was meant for the ‘upgrading’ of informal settlements. This should be changed as the intention was to eradicate informal settlements.

Ms Fanoe said that the ‘upgrading’ meant that informal settlements should be improved so that they were at an acceptable level as opposed to an unacceptable one.

The Chairperson said that the grant was incorrectly worded; it should be the Urban Settlement Development Grant.

Mr Bloem agreed that the word ‘upgrading’ should be changed as a wrong impression would be created.

Mr Lees said that the Committee could not debate the wording as it was in the Bill and was properly described, if it was ‘upgrade’ or ‘eradicate’ then that wording should remain.

The Chairperson read from the Bill which mentioned the word ‘improve’.

Mr Mashile said that improve and upgrade were one and the same thing.

Mr Lees asked if there was a response for Umshezi municipality on page 10.

The Chairperson said that there was and the Committee Secretary should include it in the report. The Committee Report should also include that the Committee did not agree with COGTA’s proposed adjustments.

Mr Mashile asked what the Committee’s views were on the presentation from Hunter Van Ryneveld.

The Chairperson said that the Department of Transport and Treasury did not have any problems with the proposed amendments from Hunter Van Ryneveld. The Committee should accept the proposed amendments even though one could gather that Treasury and the Committee had some reservations.

Mr Mashile suggested that the transition should be allowed without creating any preemptive measures in anticipation of tensions between provinces and municipalities. So for now the amendments should be set aside. Once the transition period commenced the Committee could then look at the amendments.

The Chairperson asked if the Committee agreed that the amendments should be parked aside for now.

The Committee agreed.

The Chairperson asked if the concerns of the Provinces on the final mandates should be captured in the report or would it suffice to leave them in the committee minutes for those days that there were hearings.

Mr Mashile said that they should be left as they were because they had been sent as part of the mandate and they were supposed to inform the Committee’s findings and recommendations.

Mr Mazosiwe said that in future the research team should have more input through comments on all findings so that the Committee was better informed. There also should be more guidance from the research unit especially on the Division of Revenue Bill. There was also a lot said by the provinces but they were not placed under the findings of the Committee even though they were in the report.

Mr Bloem said that the questions raised by Mr Mazosiwe raised problems; the impression was that the research unit was already involved.

Mr Mazosiwe said that he only recommended that they should be ‘more’ involved not that they were not involved. In addition the Committee should have recommendations for its findings. There had been a lot of comments from the provinces on the funding formulas; this was not contained in the report.

The Chairperson said that Treasury had already dealt with the issues raised by the provinces which were why they were not under the recommendations or findings.

Mr Mashile recommended that the performance of certain grants should be in the form of a regular report made available to the Committee within three months. 

The Chairperson said that the Committee’s concerns about clause 14 of the Division of Revenue Bill should be should be captured under findings. COGTA should look for funds elsewhere for the NW397 municipality, their request should be rejected.

Mr Mashile agreed with the Chairperson that the request by COGTA should be rejected. National Treasury was also not allowed to try and acquire the MSIG grant for NW397 by deducting this from other municipalities as this would change the Fiscal Framework.

Adv Mangana Tau, Committee Researcher, said that National Treasury was empowered to effect amendments to the Division or Revenue Bill once it had become and Act as provided for under clause 14. During the time that the Bill was being finalised, all proposed amendments had to go through the Committee.

The Chairperson asked if the Committee adopted the report with amendments.

There was unanimous support for the adoption of the report from Members.

The Chairperson thanked all Members and said that together with Mr De Beer he would ensure that the report accurately captured all issues before it was put up in the Announcements, Tabling and Committee Reports (ATC) publication.

Meeting Adjourned.



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