2014 Adjustment Appropriations Bill; Division of Revenue Amendment Bill: briefing

Standing Committee on Appropriations

24 October 2014
Chairperson: Mr J Mohai (ANC) and Mr S Mashatile (ANC)
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Meeting Summary

National Treasury presented the 2014 Adjustment Appropriations Bill. Section 30(2) of the Public Finance Management Ac states that the adjustments budget may provide for significant and unforeseeable economic and financial events affecting the fiscal targets and other unforeseeable circumstances. Adjustments were made to accommodate those government departments that were reconfigured following the May 2014 general elections. In the Department of Health adjustments were made for Ebola control and prevention measures in South Africa; including the deployment of mobile laboratories, experts, training and technical support to Ebola-affected countries in West Africa.

In the Division of Revenue Amendment Bill, reductions were applied proportionately across provincial conditional grants, but no reductions will be made on the Comprehensive HIV and AIDS Grant or the National School Nutrition Programme Grant. No reduction was made on the local government equitable share. Local government conditional grant reductions were higher where there was underspending of grants and where grants did not fund infrastructure. Provinces will begin to receive performance-based allocations for health and education infrastructure, incentivising improved performance. Funds will be reprioritised out of the Provincial Roads Maintenance Grant to SANRAL for the upgrading of the R573 (Moloto Road) which was expected to be transferred to SANRAL. Funds were also reprioritised out of the Human Settlements Development Grant to the Housing Development Agency,

Members thanked the Treasury for allocating money for the Moloto Road as many people have lost their lives on that road. Members asked why it was taking long for the established Department of Small Business Development (DSBD) to be allocated funds as this had a severe effect on the operations of small businesses in provinces and for job creation. The Treasury replied that DSBD was operating within the Department of Trade and Industry and spending the funds. This was a temporary working arrangement between the departments. There were policies the DSBD needed to go through—first proclamation and then legislation to assign its powers, then the Department of Public Service and Administration needs to look at its functions and organisational structure. The Department of Small Business Development was the only department which was not a new organisation, but merely a shift of functions. There was need for time to think through the organisational structure and functions.

Caution was raised about the millions set aside for borehole revitalisation. Most of the boreholes are incomplete or  only exist on paper, despite millions being spent on paying the service providers. The Treasury was encouraged to look into the way in which departments were behaving with fleet management. Treasury responded that as allocations were no more growing, it provides much more opportunity for government to look deeper into what its department and entities are spending money on. There was some inefficiency and they must get rid of that so money is prioritised properly

National Treasury noted the indirect grant created in 2012/13 to eradicate mud structures especially in Eastern Cape schools and other provinces. It was implemented at national level but given to provinces if they had implementing capacity. Unspent grants in local government were returned to the National Revenue Fund. The reason for doing this was to instil the discipline of better planning. There was no reason for planning not to happen in advance when future allocations were known two years in advance. When some MPs remonstrated about taking funds away from slow-moving local governments, Treasury said it was willing to have further engagements on grants and about the DSBD  to ensure that there was better coordination and no duplication of functions.

Meeting report

2014 Adjustment Appropriations Bill: briefing
Ms Kay Brown, Chief Director: Expenditure Planning. National Treasury said the Public Finance Management Act (PFMA), section 30(2), states that the adjustments budget may provide for significant and unforeseeable 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 governs the use of funds in emergency situations; money to be appropriated for expenditure already announced by the Minister during the tabling of the annual budget for which the details of the annual allocations are now decided; the shifting of funds between and within votes; utilisation of unspent funds under a main division of a vote to defray increased expenditure in another main division in terms of section 43, which governs the use of virements and the roll-over of unspent funds from the preceding financial year.

The Adjustments Appropriation Bill provides for increases or decreases to allocations set out in the main Appropriation Act, including shifts in the projected economic classification of this spending. Adjustments to allocations to provinces and municipalities are set out in the Division of Revenue Amendment Bill. The Adjusted Estimates of National Expenditure explains national changes in detail, together with midyear performance and expenditure information. Expenditure allocations were subject to the PFMA and its regulations. The adjustments budget serves both to effect necessary changes and contributes to in-year oversight and management. In the Department of Cooperative Governance and Traditional Affairs for instance, adjustments were made for the repair of infrastructure damaged by disasters and the establishment of the Traditional Affairs deputy ministry. In the Department of Health adjustments were made for Ebola control and prevention measures in South Africa; including the deployment of mobile laboratories, experts, training and technical support to Ebola affected countries in particular Sierra Leone. There was R6.2bn downward adjustment in total estimated spending for 2014/15. Total level of spending decreases from a budgeted R1 142.6 billion to a revised R1 136.3 billion.

2014 Division of Revenue Amendment Bill; Provincial & Local Government Fiscal Frameworks
Ms Wendy Fanoe, Chief Director Intergovernmental Relations, National Treasury, said Section 12(4) of the Money Bills Amendment Procedure and Related Matters Act requires that the Minister of Finance table a Division of Revenue Amendment Bill (DoRAB) with the revised fiscal framework if adjustments budget effects changes to the Division of Revenue Act (DoRA). Following the national and provincial elections in 2014, several changes to the functions and structures of national departments were announced. These included the shift of the sanitation function from the Department of Human Settlements to the Department of Water and Sanitation. This shift will be affected in the 2014 Adjustments Budget (including through DoRAB). No in-year additions to the equitable share. All non-discretionary obligations must be adequately provided for within provincial budgets.

There were baseline reductions in all spheres. The reductions to baseline should be offset by improvements in efficiency in provinces and municipalities and should therefore not impact service delivery. Reductions were small in percentage terms (details in 2015 Budget). Reductions were applied proportionately across provincial conditional grants, but no reductions will be made on the Comprehensive HIV and AIDS Grant or the National School Nutrition Programme Grant. No reduction was made on the local government equitable share. Local government conditional grant reductions were higher on underspending grants and grants that do not fund infrastructure. Provinces will begin to receive performance-based allocations for health and education infrastructure, incentivising improved performance. Funds will be reprioritised out of the Provincial Roads Maintenance Grant to SANRAL for upgrading of the R573 (Moloto Road) which was expected to be transferred to SANRAL. Funds also reprioritised out of the Human Settlements Development Grant to the Housing Development Agency, which will take on an enhanced role in planning and coordinating projects (including some work previously done by provinces). The National Treasury has allocated a transitional grant for demarcation.

Discussion
Mr C De Beer (ANC; Northern Cape) thanked the Treasury for allocating money for the Moloto Road as many people have lost their lives on that road. Treasury needed to return money returned to it from Northern Cape. The money was allocated for floods on the lower Orange River in the area of Upington. Administrative hiccups made the uptake of the money slower and it had to be returned to Treasury. That money must be returned as those farmers were still struggling. It was upcoming emerging farmers who still need assistance. He asked if the R30 million allocation for Northern Cape Department of Health was for the completion of the mental hospital. Bloemhof was a major issue affecting not only North West, but the Northern Cape. The water from Bloemhof dam was flowing into the Northern Cape and affects irrigation schemes for 574 farmers - not only established but emerging farmers also. If something was wrong at the dam, it had a ripple effect down the line. The mechanisms for the local government equitable share have to be found to monitor spending to ensure that money was being used effectively. When the NCOP visited provinces to do oversight in municipalities, they were complaining that they were struggling.

Mr C van Rooyen, Chairperson of Free State Legislature Finance Committee, asked why it was taking so long for the established Department of Small Business Development (DSBD) to be allocated funds as this has a severe effect on the operations of small businesses in provinces and for job creation. He asked why allocations for FET colleges and adult colleges was coming from the equitable share instead of grants. He now knows who to blame if provinces lose money for road maintenance due to the prioritisation of the Provincial Roads Maintenance Grant to SANRAL for upgrading of the R573 (Moloto Road).

Mr V Mtileni (EFF) asked if the R62 million set aside to revitalise boreholes in Giyani was a bailout due to contractual disputes and litigation stalling the project. The government seems to be failing to take note of this problem. It had been stalling for more than three years without anything happening. Mopani District was reported in the newspaper as having millions paid out for boreholes to be drilled. Most of the boreholes are incomplete or  only exist on paper, despite millions being spent on paying the service providers. There was need for intensive introspection before adding more money to it. Also, Treasury must check the way in which departments were behaving about their fleet management.

Mr M Figg (DA) said it was problematic when money was returned to Treasury as it meant bad planning was done and department that the money was allocated to, were left disadvantaged. He asked how it was possible to have R3 billion unallocated reserves in a national budget short on funds and borrowing every year to meet deficit. He asked how the R4.2 billion was underspent in local government when there were so many deficiencies in local government. The country was lacking skills and money was not being used to develop skills. He asked why it was possible to have decreased state debt at a time when debt was increasing. He asked for the difference between school infrastructure and education grants. He asked what happens to the 1% that was left in the revenue allocation and whether it was a discretionary fund.

Dr C Madlopha (ANC) said there were high expectations from people for the Department of Small Business Development (DSBD) to attend to their challenges, as it focuses on the challenges facing small business. The delayed funding was a cause for concern. She asked if Treasury was aware that certain projects to provide electricity connection to households via the non grid electricity programme, were not completed by the Department of Energy (DoE) in 2013/14. The projects were committed to the community after DoE ran out of funds and the projects were not going to be completed in the current financial year. DoE was arguing that the budget received for 2014/15 was for paying debts from the previous financial year. In her constituency, there were continual service delivery protests around electrification in Umlalazi Municipality because the people feel that they had been short-changed.

Ms Malijeng Ngqaleni, Deputy Director General Intergovernmental Relations, National Treasury, replied that it was not normal for projects to be started and not completed, and then not prioritised.

 Ms Fanoe replied that R8,9 million will be rolled over in the Department of Energy although she was not that sure if it was particularly for the project asked about.

Ms Ngqaleni said there were two grants supporting education. The education infrastructure grant flows directly from Department of Basic Education. There was also an indirect grant created in 2012/13 to eradicate mud structures especially in Eastern Cape schools and other provinces. It was implemented at national level but given to provinces if they had implementing capacity. Unspent grants in local government were especially a problem. If unconditional grants were not spent, they were returned to the national revenue fund. The reason for doing this was to instil the discipline of better planning. There was no reason for planning not to happen in advance when these allocations were known about two years in advance. This has really helped in improved spending in local government. Treasury was working with local government and provincial government to address capacity especially in education and health with the funding and planning framework. It has introduced an incentive for planning. The concern was value for money determined by capacity and better planning. As allocations were no more growing, it provides much opportunity for government to look deeper at how and what it was spending money on, how it was combining resources to produce a certain output, can it do things better. With slower economic growth, there were certain sectors to look for efficiency rather than looking for more money. There were some inefficiencies that we must get rid of so that money was prioritised properly. There was a problem of water in Giyani and the drilling of boreholes was a short term measure. The FET grants were created with a clear purpose so was the adult education grant.

Ms Fanoe said the money for boreholes was to be done by the national government to ensure that water becomes accessible to the 250 000 households for continued service delivery. She will follow up on the indirect grant to the Department of Health but it was likely that it was for the Kimberly Mental Hospital.

Ms Brown said the Department of Small Business Development was currently operating. The main appropriation bill was tabled prior to the elections in terms of existing departments. DSBD was operating within the Department of Trade and Industry and spending funds. This was a working arrangement between the departments. There were processes the departments that were reconfigured needed to go through—first proclamation and then legislation to assign powers, then the Department of Public Service and Administration looks though their functions and organisational structure. The DSBD was the only department which was not a new organisation, but merely a shift of functions. There was need for time to think through the organisational structure and functions and how it will operate. The Department now awaits coming to the Treasury to discuss its budget vote structures. The budget estimate includes the amounts appropriated to Departments and direct charges and others. It does not want to borrow funds it may not spend. Estimates of underspending were done looking at the trends of underspending over the years. The unallocated reserves were previously known as contingency reserves. When the budget was tabled, that amount was tabled. This was done so that it can be used during times of natural disaster. The state's debt cost was increasing because the rand has weakened; there were adverse assessments on country standing and subsequently interests rates were now higher. By the time of the budget in 2014/15, it was estimated that the rand will be weaker than what it currently is now. The unallocated fund was the contingency fund.

Ms Motlalepula Rosho, Chairperson of North West Finance Committee, said the division of revenue for disaster funding was only made to five provinces. In the North West there was a pronouncement of a disaster fund because of the recent tremor around Klerksdorp area and it was not clear if it was given by Treasury. The request had been already submitted at the level of province. She asked how cooperatives will be reengineered as a catalyst for economic growth within the local sphere of government. The allocation on public works was done in the context of the old structures while there were reconfigurations following elections in North West. The sports and recreation grant was another, as in North West sports was now in Education and Recreation was in Traditional Affairs.

Mr F Essack (DA) said government intends to shift funds from existing road allocations at provincial and national level to the Moloto road project. What are the exact implications of shifting these funds for the roads they had been originally allocated for? What is the proposed cost for the Moloto road project?

Mr Mohai asked if there were any reforms for grant allocation to local government. He asked if there was a relationship between long term planning and budgets.

Ms Brown replied that the relationship between long term planning and budget was under review. One of the suggestions was that provinces can use money for grants for long planning but this will not be done soon as there was a need to research how much capacity was needed, how much was needed for planning. Long term planning and integrated development was a requirement for metro municipalities. The Moloto Road was a complicated, tricky issue and input was to be provided in consultation with the Department of Transport. It will follow up on the reconfiguration of North West departments.

Ms Brown replied that there was no pending request forwarded to the Treasury by the National Disaster Management Centre. The provincial government may have covered it in full. She did not have a full answer about DSBD as she does not have a structure for it. There were policy imperatives that needed to be done.

Ms Ngqaleni it was for the DSBD to clearly define its approach. There were a lot of things it needed to influence and to make sure there were linkages with local and provincial government. Some of the programs were already there and the shift was in terms of support or they had not been properly guided. It needed to redefine how it operates with other spheres of government and other government departments to properly target small enterprises. It needs to be clear in terms of strategy and approach. Treasury was coming up with far reaching ideas on reforms for grant allocation to local government in order to address some dysfunctional sites caused by too many grants in the system, poor planning, poor monitoring and oversight and poor accounting on what the grant was spent on. A lot of change has to happen at the national level on how grants are administered, how local government is supported. There is need to look at it and build something in a consistent way for where functions were actually located going forward in the future.

Mr Mashatile asked why the Treasury was underspending on the employment facilitation grant.

Ms Ngqaleni replied that was an innovation fund that involved interface with the private sector in identifying projects that can create sustainable jobs. It was not about government creating, but government enabling the private sector to create jobs. It was important to ensure that whatever the money was spent on, there was value in it. There were a lot of projects in the pipeline, but there was a delay in the take-up. There had been an improvement over the years but it was not where it should be. Such kind of outcomes happens when trying to be innovative.

Mr De Beer said the Development Bank of Southern Africa (DBSA) was running the Jobs Fund and it must present its Annual Report before Parliament to the Standing Committee on Finance and Select Committee on Appropriations.

Mr L Suka (ANC) said the issue was not just about establishing a small business department and funding it. There was the area of development finance institutions and their capitalisation by Treasury. There was a need to look at which finance institutions were migrating to DSBD or whether there was need to reconfigure them in a particular fashion to become more effective. There was need for a deeper conversation between parliamentarians and Treasury. There was need for coordination between Treasury, DSBD, cooperatives and provincial governments.
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Ms Ngqaleni replied that Treasury was willing to have further engagements on grants and about the DSBD  to ensure that there was better coordination and no duplication of functions.

The Chairpersons thanked Treasury for appearing before the Committee

The meeting was adjourned.

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