Division of Revenue Amendment Bill [B38-2013] & Adjustments Appropriation Bill [B37-2013]: briefing by National Treasury

Standing Committee on Appropriations

24 October 2013
Chairperson: Mr E Sogoni (ANC) and Mr T Chaane (ANC; North West)
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Meeting Summary

National Treasury presented the 2013 Division of Revenue Amendment Bill and the 2013 Adjustments Appropriation Bill to the Joint committee meeting.

The 2013 Division of Revenue Amendment Bill highlighted various issues, including in-year adjustments to provincial allocations; 2013/14 adjustments for local government; changes to Gazetted frameworks and allocations; changes to provincial government frameworks and grant frameworks; and the 2014 Medium Term Expenditure Framework (MTEF) for Provinces and Local Government.

With respect to the in-year adjustments to provincial allocations, it was reported that wage increases in 2013/14 were higher than cost provided in budget due to higher than anticipated inflation. R563.8m was added to the provincial equitable share and R11.5m to FET colleges. R690.8m was added to the provincial equitable share to assist provinces with the cost of upgrading clerical positions

With regards to the 2013/14 Adjustments for Local Government, it was reported that:

Local government equitable share increased by R13.2m
•R1.9m reimbursement for Marikana funeral costs
•R11.3m for funds not transferred to the municipality during 2012/13 due to measures taken to enforce compliance with treasury norms and standards for Bela-Bela municipality
 
There were changes to the provincial government grant frameworks. The frameworks for the human settlements development grant, education infrastructure grant, comprehensive agricultural support programme grant, provincial roads maintenance grant and health facility revitalisation grant) had been amended to include the following conditions to govern the use of disaster funds added:
•Business plans in line with post verification assessment reports must be submitted to National Disaster Management Centre
•Disaster reconstruction and rehabilitation funds only used for approved projects
•Quarterly reports on expenditure on disaster projects submitted to NDMC
•Amount per province that can only be used for disaster recovery

There were changes to the local government frameworks. These included the Public Transport Network Operating Grant, Municipal Water Infrastructure Grant, Municipal Disaster Recovery Grant and Rural Households Infrastructure Grant.

National Treasury highlighted the changes to provincial equitable share and grants over the 2014 MTEF:

R11.9b (R2.5b 2014/15, R4.3b 2015/16 and R5.1b 2016/17) added to provincial equitable share to fund, amongst others:
•Costs of wage agreement (due to higher than anticipated inflation)
•Re-grading of clerical positions
•SD for therapists in education (funded through a conditional grant in first two years)

National Treasury highlighted the changes to local government share and grants over the 2014 MTEF. The baseline growth averaged 9.2 % per year over the MTEF. A new formula that funded free basic services for the 59 % of households with an income less than 2 old age grants was still being phased-in. There had been moderate reductions to make funding available to other grants: Municipal Infrastructure Grant, Urban Settlements Development Grant, Expanded Public Works Integrated Grant for Municipalities, Infrastructure Skills Development Grant and Energy-Efficiency Demand Side Management Grant.

National Treasury explained the 2013 Adjustments Appropriation Bill, highlighting the structure of the bill.

National government had an adjustment of R1 025.9 billion while provincial government had an adjustment of R1 266.1b, bringing the total to R2 292.0 billion. The total unspent funds amounted to R3 032.7billion. The Department of Social Development accounted for R2 000 billion of this due to a decrease in social grants payment estimates while the Departments of Human Settlements and of Transport had the least at R20 million each. The total estimated expenditure for Main Appropriation (ENE) was R1 055 074.611 trillion while the Adjustments Appropriation was (R5 681.258bn) and the Adjusted Appropriation was R1 049 393.353 trillion.

Members asked about the Marikana expenses, the basis on which bonuses were paid out, how many provinces had Provincial Development Plans and if they were aligned to the National Development Plan (NDP), why the budget allocation for KwaZulu Natal was more than that of Gauteng, which provinces had roll-overs every financial year, about the transfer of funds to FET colleges and the water infrastructure grant. Members further expressed concern that the NHI and its total cost of implementation was not indicative in the Bills
 

Meeting report

Division of Revenue Amendment Bill and Provincial and Local Government Fiscal Frameworks
Mr Andrew Donaldson, Deputy Director General: Public Finance, National Treasury briefed the Committee on the in-year adjustments to provincial allocations and reported that wage increases in 2013/14 were higher than cost provided in the budget due to higher than anticipated inflation. R563.8m was added to the provincial equitable share and R11.5m to FET colleges. R690.8m was added to the provincial equitable share to assist provinces with the cost of upgrading clerical positions.

The following amounts were rolled over:
•R109.3m for Devolution of property rate funds incorporated into the provincial equitable share
•Dinaledi schools grant received R4m for funds committed to projects in 2012/13 and Technical secondary school recapitalisation grant receives a roll-over of R10.6m
Free State and Mpumalanga were reimbursed R0.4m for funeral costs incurred for victims of the Marikana tragedy. R167m was converted to direct transfers as part of health facility revitalisation grant to KZN and Northern Cape.

With regards to the 2013/14 Adjustments for Local Government, Mr Donaldson reported that:

Local government equitable share increased by R13.2m
•R1.9m reimbursement for Marikana funeral costs
•R11.3m for funds not transferred to the municipality during 2012/13 due to measures taken to enforce compliance with treasury norms and standards for Bela-Bela municipality
 
Conditional grants
•Rollovers
•R2.4m for Municipal Infrastructure Grant for Bela-Bela municipality
•R58m for Regional Bulk Infrastructure Grant mainly due to delays in importing materials and equipment
•R100.5m for Rural Households Infrastructure Grant for on-site solutions for water and sanitation services for rural households as a result of commitments made for projects that had not been implemented by end of 2012/13

Virement
•R0.6m added to Expanded Public Works Programme Integrated Grant for Municipalities to correct for an underpayment in 2013/14 caused by a problem with the electronic transfer system

Mr Donaldson said there were changes to the provincial government grant frameworks. The frameworks for the human settlements development grant, education infrastructure grant, comprehensive agricultural support programme grant, provincial roads maintenance grant and health facility revitalisation grant) had been amended to include the following conditions to govern the use of disaster funds added:
•Business plans in line with post verification assessment reports must be submitted to National Disaster Management Centre
•Disaster reconstruction and rehabilitation funds only used for approved projects
•Quarterly reports on expenditure on disaster projects submitted to NDMC
•Amount per province that can only be used for disaster recovery

There were changes to the local government frameworks. These included the Public Transport Network Operating Grant, Municipal Water Infrastructure Grant, Municipal Disaster Recovery Grant and Rural Households Infrastructure Grant.

The changes to provincial equitable share and grants over the 2014 MTEF were as follows:

R11.9b (R2.5b 2014/15, R4.3b 2015/16 and R5.1b 2016/17) added to provincial equitable share to fund, amongst others:
•Costs of wage agreement (due to higher than anticipated inflation)
•Re-grading of clerical positions
•SD for therapists in education (funded through a conditional grant in first two years)

Other changes included the proposed additions to conditional grants and the modest reductions to slow-spending grants. A shift of R900m from the Human Settlements Development Grant to Metros was highlighted in respect of the latter.

National Treasury highlighted the changes to local government share and grants over the 2014 MTEF:

•Baseline growth averaged 9.2 % per year over the MTEF. A new formula that funded free basic services for the 59 % of households with an income less than 2 old age grants was still being phased-in.
•There had been moderate reductions to make funding available to other grants: Municipal Infrastructure Grant, Urban Settlements Development Grant, Expanded Public Works Integrated Grant for Municipalities, Infrastructure Skills Development Grant and Energy-Efficiency Demand Side Management Grant
•There were targeted incentives to strengthen city spatial development over MTEF through:
Proposed addition to the Integrated City Development Grant of R356 million to incentivise cities to develop more integrated and efficient spatial forms
Devolution of human settlements function to six metropolitan municipalities will be supported through addition of R900 million to develop cities’ capacity to manage human settlements development (possibly through a new grant)

2013 Adjustments Appropriation Bill
Ms Malijeng Ngqaleni, Acting Deputy Director-General: Inter-governmental Relations, National Treasury, said the 2013 Adjustments Appropriation Bill had the following components:

Components of an Adjustments Budget
The PFMA Act 1 of 1999, section 30 (2) stated that the adjustments budget may provide for:
•significant and unforeseen economic and financial events affecting the fiscal targets;
•unforeseeable and unavoidable expenditure recommended by a committee of Cabinet
•any expenditure in terms of section 16, which governed the use of funds in emergency situations
• the shifting of funds between and within votes; and the roll-over of unspent funds from the preceding financial year

2013 Adjustments Appropriation Bill
The Adjustments Appropriation Bill provided for increases or decreases to allocations set out in the main Appropriation Act, including shifts in the projected breakdown of spending. Adjustments to allocations to provinces and municipalities were set out in the Division of Revenue Amendment Bill. The Adjusted Estimates of National Expenditure explained those changes in detail, together with mid-year performance and expenditure information.

Structure of the Bill
The Bill was divided by vote and by main division within a vote (programme). Adjustments to allocation were divided into: current payments, transfers and subsidies, payments for capital assets and payments for financial assets. Allocations marked with an * referred to specifically and exclusively appropriated amounts. Conditional grants were specifically and exclusively appropriated.

Personnel remuneration adjustments (s30 (2)(a) of the PFMA)
National government had an adjustment of R1 025.9 billion while provincial government had an adjustment of R1 266.1b, bringing the total to R2 292.0 billion.

Unforeseeable and unavoidable expenditure (s30 (2)(b) of the PFMA)
The total was R558.9 million, which constituted votes and expenditure related to Departments such as Cooperative Governance and Traditional Affairs, International Relations and Cooperation, Public Enterprises, Public Service and Administration, Social Development, Defence and Military Veterans, Environmental Affairs, Tourism.

Roll-overs (s30 (2)(g) of the PFMA)
The total was R894.1m. Water Affairs had the largest vote and expenditure of R188m followed by Defence and Military Veterans which had an expenditure of R153.6. The lowest expenditure was from the vote of International Relations and Cooperation which was R10.5m, followed by Basic Education at R14.7m.

Self-financing expenditure
The total expenditure was R507.7m. The highest expenditure came from the Home Affairs vote in terms of issuing official documentation at R426.9m, followed by Defence and Military Veterans at R50.4m whose expenditure was funded from selling equipment and spares procured through the special and general defence accounts. The vote on Trade and Industry was R30m funded from unitary part-payments received from public entities. The least expenditure was Correctional Services at R4m funded from revenue generated from hiring out offender labour.

Declared unspent funds
The total unspent funds amounted to R3 032.7billion. The Department of Social Development accounted for R2 000 billion of this due to a decrease in social grants payment estimates while the Departments of Human Settlements and of Transport had the least at R20 million each.

Revised National Budget Expenditure 2013/14
The total estimated expenditure for Main Appropriation (ENE) was R1 055 074.611 trillion while the Adjustments Appropriation was (R5 681.258bn) and the Adjusted Appropriation was R1 049 393.353 trillion.

Conclusion
There was a R5.7bn downward adjustment in total estimated spending for 2013/14, R5.5bn in additional appropriations, and an offset amounting to R11.2bn. The total level of spending decreased by R5.7bn from a budgeted R1 055.1 trillion to a revised R1 049.4 trillion.

Discussion
Mr M Swart (ANC) referred to the Marikana expenses and wanted to know which department was responsible for carrying that cost. He also wanted to know the basis on which bonuses were paid out as he observed that there was no separate line budget for that in the Bill.

Mr W Makhubela (COPE; Limpopo) wanted to find out how many provinces had Provincial Development Plans and whether or not these were aligned to the National Development Plan (NDP) and if provincial appropriations were also in line with the NDP. His concern was that if not all provinces had adopted their Plans and they were being given more than 44% of the budget, did that mean that vision 2030 would be achieved or a new target line would be set?

Mr B Mashile (ANC; (Mpumalanga)) wondered how the budget allocation for KwaZulu Natal was more than that of Gauteng and wanted to know why. He also sought clarity on the R167m which was being allocated to the provinces of KwaZulu Natal and the Northern Cape in the form of direct transfers because the two provinces had the capacity to spend. He mentioned that the Northern Cape had no capacity to spend because they had been there and had done an assessment.

Mr Makhubela referred to the Adjustments Appropriation Bill and wanted to know which provinces had diseases that enabled them to have money roll-overs every financial year. He also wanted to know if the National Health Insurance (NHI) pilot project had any projections in that regard.

Ms R Mashilo (ANC) wanted to know how the community work program operated to better the lives of beneficiaries and at which stage it became a roll-over.

Ms T Memela (ANC) referred to the virement and the underpayment caused by a faulty electronic transfer system. She questioned how it took the Treasury a year to know that it didn’t transfer money to other departments.

Mr Makhubela also added that the NHI and its total cost of implementation was not indicative in the Bills. Furthermore, he wished to know if the curtailment strategy for the runaway trend in the Public Strategy Bill included personnel curtailments and what in general it was all about. He mentioned that this was in light of the fact that there were constant reminders to fill vacancies.

Mr Sogoni enquired whether the whole taxi industry needed to be looked at again, citing the fact that despite the programme on taxis being there, there were a lot of old taxis on the road.

He also wanted to know about the transfer of funds to FTE colleges. He mentioned that the Portfolio Committee on Education had a recommendation in their Bill referring to the fact that while funds were going to the province,  competence had now shifted to higher education and that there was a problem with this.

He also cited the Minister’s speech that from 2014, metros would receive direct funds to build houses. He informed the Meeting that the Standing Committee on Appropriations had a meeting with metros earlier, about six months ago, in which it was indicated that no metro was ready for that and it was confirmed by officials from the Department of Human Settlements. He wondered whether that had changed and if Treasury had confirmed so.

He was also concerned about the late transfer of funds, for example the case of Bela-Bela municipality. He said that since most municipalities did not have the capacity to spend resources, was it possible to consider allowing such municipalities to have their resources roll-over to the next financial year?

He also sought clarity on the water infrastructure grant and whether it was the “M Week” being referred to or not. And if it was a different grant, did the Department of Water Affairs (DWA) have the capacity to manage two grants?

Furthermore, apart from the grant in DWA, he was concerned that the Department had their own in-house construction unit that was not subject to tenders, when in fact there was no proper capacity Bill for that. He wanted to know how they needed to operate, as his Committee had raised the issue several times before.

Another issue he was concerned about was the continuous allocation of money to the Department of Communications when they never spent. He wondered whether it was merely a holding place for funds and was of the view that allocation must end until such a time when they required it.

He commended the Department of Rural Development and Land Reform for having spent well in 2013. However, he was concerned and the virements and if they had been raised with Treasury.

The Treasury responded to the questions as follows:

Mr Donaldson addressed the question on the Department of Rural Development and Land Reform and stated that there was a shift between programmes that exceed the discretion of the financial accounting officers. It was important to note that if the adjustments appropriations were beyond what the accounting officers could do themselves, then the shifts could only be made if passed by Parliament. Another important aspect of the shift was to boost the Rural Youth Employment Programme.

Mr Donaldson further indicated that the taxi re-capitalisation programme was continuing and there was recapitalization in that regard.

Ms Ngqaleni informed Members that the Provincial Roads Maintenance Grant had been around for years. But National Treasuryrealised that it did not take into account things like conditions of roads or the traffic in allocating the grant. Therefore, for the past three years, National Treasury had been revisiting the grant and working on a new formula to be effected in 2013/14 that did not largely depend on demographics as before. The new formula thus affected the issuing of grants.

Ms Ngqaleni addressed the question on the Bela-Bela municipality and stated that Treasury did not anticipate any under-spending in 2013/14 as the issues that led to that before such as non-compliance and governance issues had been resolved.

Ms Ngqaleni believed that the metros were ready to receive direct funds to build houses.  The only issue was for Departments to agree with regards to what was actually needed in terms of capacity. Through devolution, it was hoped that even the metros would state what they wanted to happen so that the process could start.

Ms Ngqaleni addressed the issue of Provincial Development Plans being aligned with the National Development Plans. The important thing was to understand what functions provinces needed to perform in relation to key priorities mentioned in the National Development Plan such as education and health which accounted for a large share of the social service budget. Therefore, if provinces performed well in those areas, that would be considered a major contribution to the NDP.

Ms Ngqaleni said that the Northern Cape did have the capacity to spend and was actually doing well compared to other provinces.

Ms Ngqaleni addressed the question on the funeral costs of the Marikana tragedy and the legal costs. She said that some provinces and municipalities had also made some funds available; therefore, it was not only the grant that was funding that entirely.

Mr Donaldson stated that government did not have a large unallocated fund for personnel and there were some posts that were not filled. But that of course there were turnovers and recruitments were being made.

Mr Donaldson stated that Treasury was engaging the Department of Communications to find out what exactly was going on as they did not want such a case.

Mr Donaldson stated that in terms of the overall NHI, the Green Paper had been produced and that the project was a long term one of about fifteen years. In terms of NHI financing, as the economy grew, there was potential for increase in health spending too, as many other sectors of the economy. Secondly by international comparison, South Africa had a high level of health insurance funded through private arrangements like medical schemes. Therefore, over time with NHI, there would be a shift in the balance of funding between NHI relative to private insurance schemes, which would not happen overnight.

The Community Work Programme was implemented through contracts with non-governmental agencies and was not found in municipal allocations.

Mr Sogoni thanked the Treasury for the presentation and urged members to study the budget as there were some changes.

The meeting was adjourned.
 

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