SC Approp: Draft Committee Report on Division of Revenue Bill: Deliberations

Standing Committee on Appropriations

05 March 2012
Chairperson: Mr M Sogoni (ANC)
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Meeting Summary

The Standing Committee on Appropriations met to discuss the Committee’s Draft Report on the Division of Revenue Bill (the Report). The Report outlined the purpose of the Division of Revenue Bill, to determine the equitable division of nationally raised revenue between the three spheres of government, in order to foster transparency and ensure smooth intergovernmental relations. The allocations to national, provincial and local government were outlined. The Report also confirmed that there had been a consultation process. The Financial and Fiscal Commission (FFC) believed that provincial costs in provinces remained of major concern, being 70% of the R3.3 billion for 2012/13, and said this could compromise future service delivery. FFC also recommended that a regulatory framework was needed for future interventions in terms of section 100 of the Constitution. National Treasury reported that 15%, under the P-component of the Municipal Infrastructure Grant (MIG), was ring-fenced in the conditional grant framework for municipal sports facilities. The South African Local Government Association (SALGA) had noted that, and had also recommended that, in the long term, conditional infrastructure grants should include maintenance and backlog requirements. The Department of Basic Education commented on its own capacity to monitor and evaluate the performance of the grants at provincial level, and described the School Infrastructure Backlogs Grant, which had received an allocation of R2.3 billion. The Department of Health was undertaking an audit of its 4 200 facilities nationwide, to assess the state of services provided and the state of infrastructure, and provinces would then be required to align their conditional grants to addressing the particular aspects identified by that audit. The shortage of medical practitioners remained a serious challenge. This Department had raised the accrued debt at the Gauteng Provincial Department of Health, and the allocation of R150 million for pilot projects to test the feasibility of the National Health Insurance. The Department of Cooperative Governance and Traditional Affairs had generally endorsed the Bill, but had raised concerns about allocations to water and sanitation to the OR Tambo District Municipality, instead of Alfred Nzo District Municipality, and ringfencing for sporting facilities.

The Report set out the findings and recommendations of the Committee. The Committee recommended that the Minister of Basic Education should ensure that a detailed report was sent on the 49 schools constructed under the Accelerated Schools Infrastructure Development Initiative (ASIDI), and that the Minister of Health report on how the challenges of underfunding and poor management led to the accrual of debt at the Gauteng Department of Health.

Members discussed various aspects of the Report, noting grammatical or spelling errors, and thought that meetings were needed with National Treasury. Members discussed the wording of the Report dealing with the SALGA recommendation on conditional grants, but decided not to change the sentence, although further clarity was needed from SALGA, and thought that future discussions should be held between FFC and SALGA. There should be more research on the grants, to discover areas of duplication. The Committee expressed concerned about the mud schools and noted that a visit to them may be necessary, that further debate was needed, and recommended that the Minister give a report on the 49 schools. Members asked about the purpose of the legal opinion sought by Department of Health, but there was some debate about the findings on the Gauteng Provincial Department of Health, as a COPE Member felt that poor management in the department, rather than underfunding, was the reason for the accrual of the debt. Members noted that both reasons had been cited, and would consider the point further before adopting the Report.

Meeting report

Draft Committee Report on Division of Revenue Bill
The Committee Chairperson and the Researcher for the Standing Committee on Appropriations took the Committee through the draft Report of the Committee on the Division of Revenue Bill(the Report).

The Report noted that sections 9 and 10(4) of the Intergovernmental Fiscal Relations Act 1997 set out the consultation process to be followed with the Financial and Fiscal Commission (FFC), which included considering recommendations on the equitable division of nationally raised revenue. The FFC reported that the personnel costs incurred by provinces remained a major concern and that this could compromise future service delivery. These costs accounted for 70% of the R3.3 billion set aside in the 2012/13 financial year. The FFC also made reference to the number of provincial departments that were under administration in terms of section 100 of the Constitution. It noted that there was a need to develop a regulatory framework for future section 100 interventions.

The Money Bills Amendment Procedures and Related Matters Act, 2009 was enacted to give effect to section 73 of the Constitution. This Act empowered Parliament to amend the government budget and therefore play a greater role in ensuring that the most urgent needs of South Africans were addressed. It provided Parliament with instruments to oversee government actions and monitor its fiscal discipline.

The Division of Revenue Bill (DORB) divided amounts between the three spheres of government. The allocation to national government amounted to R622.4 billion, which represented 64.2% of the overall nationally raised revenue. This marked an overall increase in the national allocation by R60.2 billion, or 10.7% compared to the previous financial year. Excluding conditional grants, provincial departments were allocated R309.1 billion, or 31.9 % of the nationally raised revenue. This was increase of over 5.9% on the 2011/12 allocation of R291.7 billion. The local sphere of government was allocated a total of R37.9 billion, or 3.9 % of the nationally raised revenue. The overall municipal allocation increased by R3.8 billion or 11.1%, compared to an allocation of R34.1 billion in the 2011/12 financial year. Of all the provincial allocations, KwaZulu Natal received the highest share of R67.8 billion, while the Northern Cape received the smallest share of R8.3 billion. An amount of R7.8 billion was added to the provincial conditional grants to cover policy priorities. A savings of R3.4 billion was realised and allocated towards government priorities.

Section 15 of the Division of Revenue Bill said that the National Treasury must allow Parliament a period of 14 days to comment when any government department wanted to amend or revise its conditional grant framework. National Treasury reported that 15% under the P-component of the Municipal Infrastructure Grant (MIG) was ring-fenced in the conditional grant framework for 2011/12 financial year, for municipal sports facilities. The South African Local Government Association (SALGA) noted the 15% ring fencing under MIG, but stated that some municipalities did not have significant backlogs in that regard. SALGA recommended that in the long term, a conditional grant with a maintenance and back-logs consideration be introduced for all infrastructure grants. SALGA also had commented that after deliberations with the Office of the Auditor-General, it was certain that Operation Clean Audit would be achieved by 2014 as originally planned.

There had been interactions with national departments on the 2012 DORB. The Department of Basic Education’s conditional grants were split between three schedules in the 2012 Division of Revenue Bill, and this Department had commented on some of its challenges that related to its own capacity to monitor and evaluate the performance of the grants at provincial level.  The School Infrastructure Backlogs Grant received an allocation of R2.3 billion, to eradicate mud schools infrastructure and to provide water, sanitation and electricity to schools. South Africa had a total of 496 inappropriate school structures, the majority in the Eastern Cape. The Department of Basic Education pointed out that 38 schools were under construction in the Eastern Cape and a remaining 11 were still scheduled to begin.

The Department of Health had highlighted that it was undertaking an audit of its 4 200 facilities nationwide, and 3 370 facilities had already been audited. This was a comprehensive audit covering everything from clinics to hospitals, to assess the state of services provided and the state of infrastructure. Provinces were required by the National Department of Health to align their allocations of the conditional grants towards addressing challenges identified during the audit. It was reported that the country produced 1 200 doctors, and the shortage of medical practitioners remained a serious challenge. The National Department of Health anticipated that there would be accruals of up to over R3 billion in relation to the Gauteng Provincial Health Department, but that the debt would be addressed by June 2012. Gauteng had fallen into this predicament because of poor management and underfunding. The National Health Insurance Grant was to fund pilot projects to test the feasibility of the National Health Insurance (NHI), and there was an allocation to this grant of R150 million for the current financial year. South Africa needed to decide how the National Health Insurance would be funded. The Department pointed out that the Value Added Tax would place too much burden on the poor and it could therefore not be considered as a viable option.

The Department of Cooperative Governance and Traditional Affairs had generally endorsed the DORB 2012. However, it had raised two areas of concern. The first was in relation to the OR Tambo District Municipality, which was allocated water and sanitation funds for the Mbizana and Ntabankulu local municipalities, whereas the funding for these municipalities should have been allocated to the Alfred Nzo District Municipality. It was further concerned about the ring-fencing of the P-component of the Municipal Infrastructure Grant (MIG) for the provision of sporting facilities.

The Chairperson noted that the Committee had made a finding that the Gauteng Department of Health was faced with a serious challenge of an accrued debt of over R3 billion, as a result of underfunding and poor management. The Committee recommended that the Minister of Basic Education should ensure that this Department must, within 60 working days after adoption of the Report, submit a detailed report on the 49 schools constructed under the Accelerated Schools Infrastructure Development Initiative (ASIDI) to Parliament. This report must set out the number of schools per district and the progress on construction, as well as an expenditure report. The Minister of Health was also requested to report, within 90 working days of adoption of the Report, and outline how the challenges of underfunding and poor management led to the accrual of debt at the Gauteng Department of Health.

Discussion
The Chairperson asked questions on the grammatical aspects of the report.

Mr L Ramatlakane (COPE) asked a question in relation to the use of past tense.

Parliamentary staff highlighted that since the Report was to lie in the archives of Parliament it was important that it be written in reported speech.

Mr G Snell (ANC) pointed out that consultations were important before the DORB was passed into law, but he felt that the consultation contemplated by the National Treasury was too minimal.

Mr Ramatlakane pointed out that the consultations contemplated in section 15 of the Division of Revenue Bill related to technical and not substantive matters, but the Committee needed to meet with National Treasury to get a specific understanding of the provision.

Mr M Swart (DA) thought further clarity was needed on the R3.3 billion, noting that only 70% was to be used for personnel costs.

Mr Ramatlakane reminded him of past discussions, when it was pointed out that the 70% of the money would go to salaries.

The Chairperson noted that an amount of R19.4 billion was allocated over the Medium Term Expenditure Framework (MTEF) and, of that, R3.3 billion was set aside for the 2012/13 financial year. 70% of this R3.3 billion would go towards personnel costs.

Mr Swart suggested revision of the sentence on SALGA’s recommendation on conditional grants.

Mr Ramatlakane noted that the changes suggested by Mr Swart would not alter the meaning of the sentence, and he thought that the sentence, which reflected the submission from SALGA, should remain as presently worded.

Mr Swart highlighted the fact that there was ambiguity in this sentence, and emphasised the point that there were serious backlogs in the maintenance of infrastructure, and municipalities did not have adequate funds to do this work.

Mr Ramatlakane still felt that the sentence should be left as it was in the report, but the Committee should discuss matters further with SALGA to clarify the points. He also asked for a restructuring of a paragraph relating to SALGA’s presentation so that it reflects the Committee’s opinion.

Mr Snell called for future discussions between FFC and SALGA, with a view to reviewing the collection of rates by municipalities.  He did not think that SALGA should take charge of infrastructure maintenance but further consultations were necessary.

The Chairperson asked the Members if they felt that Infrastructure Skills Development would assist in addressing the service delivery challenges that related to capacity constraints. In future, National Treasury must consolidate the different grants managed by SALGA.

Mr Snell noted that there were many similar grants, and thought research was needed to find out which skills were particularly scarce.

Mr M Mbili (ANC) asked for more detail about the construction of schools in the Eastern Cape. He noted that the building alone of 50 schools would cost R1.5 billion, and an additional R1 billion would be needed for infrastructure development.  He thought the Committee should visit the schools under construction, as these amounts seemed incorrect.

The Chairperson flagged this issue for future debate. For the purposes of adopting the Report, he noted that a follow up on this matter was crucial and a breakdown of the 49 schools must be given.

Mr Mbili  asked what National Treasury understood by “eradication of mud schools”, questioning also the distribution of the funds for additional infrastructure.

The Chairperson read out the breakdown of the presentation by the Department of Basic Education, and agreed again that the matter must be flagged for further debate.

Mr Ramatlakane recommended some grammatical challenges. He said the issue of capacity needed to be pursued latter. 

Mr Snell noted some disparities in the financial figures and asked the Committee to check these.

The Chairperson pointed out that the Department had highlighted that there was a shortfall, but the Committee had not engaged on this.

A National Treasury official said that the numbers referred to were additional allocations.

Mr Ramatlakane also recommended some grammatical changes and paraphrasing of different sentences. He also thought a sentence relating to a legal opinion sought by the Department of Health should be deleted.

The Chairperson said that this was a normal part of administration and could be deleted, but this sentence expressed the Department’s position.

Mr Swart asked about the purpose of the legal opinion, saying that amendments to existing legislative provisions allowed for patients to be treated across provincial boundaries.

Ms R Mashigo concurred with Mr M Swart.

Ms Mashigo emphasised that the pilot project for the NHI Grant was to be conducted at district level.

Mr Ramatlakane agreed to all the findings of the Committee, save that in relation to the Gauteng Health Department. He noted that the poor management in that department needed to be singled out as the reason for the accrual of the R3 billion in debts.

The Chairperson reiterated that there was also some under-funding at the Gauteng Health Department. The Director General of Health had alluded to that during her presentation to the Committee, so in fact it was both poor management and underfunding that had contributed to the provincial department’s difficulties.

Mr Ramatlakane reiterated his opinion that poor management was to blame for the huge debts, and said that nothing disproving this had been raised.

Mr J Gelderblom (ANC) pointed out that underfunding could lead to poor business management.

The Chairperson suggested that this issue be flagged.

Ms Mashigo also raised the Gauteng Health Department, saying that the Committee should know about the operations of all provinces and should not simply stress the Gauteng Health Department. She suggested that the Committee calls the provincial Departments to make presentations.

Mr Mbili thought that there had been enough interaction on this Report, but asked that other Committee Members be lobbied, and that deliberations continue on the following day.

Mr Ramatlakane said that his only difficulty with the statement was that it was the underfunding that led to the accrual of debt.

The Chairperson quipped that he was not biased towards Gauteng, and would not have a problem if the Committee wished to scrutinise this further.

Mr Swart suggested that it was possible to change the wording so that it did not give an incorrect impression.

Mr Ramatlakane thought that at the moment the findings were opaque and he re-emphasised that the debt could not have accrued through under-funding. Either the recommendations must be watered down, or they must be completely removed.

The Chairperson agreed that the recommendation would be removed, but he stressed that there were challenges around the Gauteng Health Department, and proper interrogation was needed. The Committee would reconvene on the following day to finalise the recommendations.

The meeting was adjourned.


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