Division of Revenue Amendment Bill [B27-15]: negotiating mandates

NCOP Appropriations

17 November 2015
Chairperson: Mr S Mohai (ANC, Free State)
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Meeting Summary

The Committee met to hear the negotiating mandates presented by the provinces on the 2015 Division of Revenue Bill (DORB). Members discussed at length whether or not it was procedurally correct for the Committee to hear negotiating mandates at this meeting, because the National Assembly (NA) would only be dealing with the 2015 DORB on the following day. Usually, the NCOP would deal with a Bill only after it had been dealt with by the NA, and would then refer the Bill to the provincial legislatures for consideration. Members thought that there might be a formal rule to the effect that at least 24 hours must lapse from the time of the NA consideration to the time of the NCOP consideration, and noted that the three-day rule applied but could be waived by vote. Some Members asked whether a legal opinion could be obtained, but the Chairperson noted that he had been given a legal opinion by the Parliamentary Legal Advisers who saw nothing incorrect about the proposed format of today's meeting. The Committee was taking negotiating mandates only, not final mandates. A DA Member asked what might happen if the NA were to change the Bill on the following day, but the Chairperson still felt that the negotiating mandates should be presented. The Committee would only consider final mandates after the Bill had been through the NA .

The negotiating mandates were then presented. All provinces except the Western Cape expressed that they were in favour of the Bill, but all also made comments on the Bill. Eastern Cape had raised issues on the infrastructure concerns, and noted that salary increases were not sufficient. Free State was pressing for a larger portion of the R193m for the National Health Grant to be allocated to the Free State Provincial Health Facility Revitalisation Grant, because its major provincial hospitals and clinics were in dire need of maintenance and upgrades, and also asked that the basic education allocations should not be adjusted downwards since this province provided nutritional support to learners. Gauteng commented on the socio-economic impact, financial implications and implications for different types of grants of the Bill, and recommended that projections on public service wage adjustments should be improved, to avoid funds earmarked for service delivery being diverted to salaries. It also recommended that the feasibility of projects which were to be implemented through conditional grants should be examined prior to funding, to avoid the surrender of grants. KwaZulu Natal supported the Bill, but noted that its allocations had been reduced due to migration of people away from the province. Limpopo had raised a few issues, which were not specified in the meeting, and Mpumalanga and North West also supported the Bill. Northern Cape, whilst supporting the Bill, suggested that National Treasury had to encourage provincial treasuries to assist municipalities in investing in the best billing systems and drafting relevant legislation, and help those municipalities facing payment challenges.

Western Cape did not support the Bill and raised various issues to be debated. It also pointed out that the provincial legislature was due to meet with the Chairperson of the NCOP to discuss concerns around programme coordination because the programme disruptions in the Parliament had impacted upon the province. It was noted that eight provinces thus had indicated their support for the Bill, and the final mandates would be considered on 19 November. 

Meeting report

2015 Division of Revenue Amendment Bill [B27 – 2015]: Negotiating Mandates
Discussion on procedure
Mr F Essack (DA, Mpumalanga) asked if it was procedurally correct that the Committee should deal with negotiating mandates on the Division of Revenue Amendment Bill (DORB) today, when the National Assembly (NA) would only be discussing it the following day. He pointed out that the legislation stated that after the DORB had been discussed by the NA, it would be referred to the National Council of Provinces (NCOP), and it should only be dealt with 24 hours after the NA had finished dealing with the Bill. He wondered if the Committee was not thus jumping the gun on this Bill and asked if the Committee had obtained a legal opinion, for he had not seen one. He also asked when public hearings on the DORB should take place.

Ms E Van Lingen (DA, Eastern Cape) pointed out that in terms of the Announcements, Tablings and Committee Reports (ATC) dated 4 November 2015, the DORB had not been tabled in the NCOP. She said that procedurally the Bill was therefore still “hanging”. She recalled a similar situation in 2014 when the NA had dealt with a bill in the morning and the NCOP wished to deal with it in the afternoon. The Chairperson of the NCOP had, at that time, responded that the bill had not been properly processed so that the NCOP was able to deal with it. She pointed out that the three-day rule could be waived, but she agreed with her colleague that the Committee needed to obtain a legal opinion on the procedure. She also asked what would happen if the nine-day rule was not adhered to, and the provinces were not able to do what they needed to.

The Chairperson responded that he had discussed the issue with provinces. He had also spoken to Adv Frank Jenkins, Senior Parliamentary Legal Adviser, who said that the Committee could rest assured that there was no material breach. The legal opinion on the nine-day rule and what might happen beyond nine days would, if this did occur, be circulated to members. He felt that the Committee could proceed in dealing with negotiating mandates from the provinces, but the Committee would let the process run its course before it dealt with the final mandates.

Ms Van Lingen noted that attempts by the DA to get hold of Adv Jenkins regarding the legal opinion were unsuccessful. She said that she had spoken to the Chairperson of the NCOP and had been informed that the Chairperson of the NCOP could not pass the 2015 DORB on to provinces if she did not have it in her hand. She cautioned the Committee to be very careful. She still thought that a formal legal opinion was needed to ensure that the Committee was procedurally correct.

Mr C de Beer (ANC, Northern Cape) reminded the Committee of what had been in the ATC at the time the Minister of Finance had given the Medium Term Budget Policy Statement and noted that the relevant referrals had been made then. He stated that he had made the Secretary of the NCOP aware of the position. The Standing and Select Committees on Appropriations had jointly dealt with the DORB. Briefings had taken place in provinces. He pointed out that his province, the Northern Cape, had already held public hearings. He repeated that a legal opinion had been furnished to the Chairperson of the Committee and hence the Committee could proceed with hearing the negotiating mandates for the 2015 DORB. He stressed that Members needed to stay in constant contact with their respective provincial legislatures.

Ms T Motara (ANC, Gauteng) pointed out, in respect of the ATC of the 4 November 2015, that the Bill had been tabled and dealt with by both Committees. She was not aware of the 24-hour rule. The three-day rule could be waived by vote. The issue that remained was how to deal with the final mandates on the 2015 DORB. The NA had to refer the Bill to the NCOP. Once referred, the Bill had to be considered in sittings of the provincial legislatures. In the absence of following this process final mandates could not be dealt with by the Committee. She said that the Order Paper showed that the 2015 DORB would be dealt with by the NA at 2pm whilst the Committee was meeting was carrying on. Thereafter the Bill would go to provincial legislatures. There was nothing which said that if nine days were exceeded then the Bill would be unlawful. Even if nine days were exceeded then the Bill would still be lawful but budgeting issues would be affected. It was acceptable for the Committee to proceed with negotiating mandates. The Committee would wait for the formal referral of the Bill from the NA to the NCOP. Once this was done the provincial legislatures could deal with the Bill and confer final mandates on members.

The Chairperson said that the Committee needed to separate issues of negotiating and final mandates. The legal opinion would be circulated to the Committee. The Committee would proceed now to deal with negotiating mandates from provinces. 

Ms Van Lingen said that she had a copy of the Order Paper and did not see that the NA was scheduled to discuss the 2015 DORB at 14:00.

The Chairperson said that the 2015 DORB would be tabled on the following day, 18 November 2015.

Ms Van Lingen asked how provinces could decide on negotiating mandates when the Bill had not yet been passed from the NA to the NCOP. She asked what would happen if this Committee dealt with the negotiating mandates based on the current version of the Bill, and it was changed in the NA on the following day. In that case, surely the provinces would be entitled to submit new negotiating mandates.

The Chairperson said that Members had briefed their provinces. The minutes of the present meeting would be provided to provinces as well.

Mr Essack raised a point of order and asked at what point in time Members would be allowed to study the negotiating mandates, given that these had just been handed out to them.

The Chairperson responded that Members of respective provinces would present their legislatures' negotiating mandates to the Committee. Thereafter National Treasury would be allowed to respond to the negotiating mandates.

He asked the provinces to present their negotiating mandates.

Eastern Cape Province
Mr L Gaehler (UDM, Eastern Cape) said that this province supported the Bill but had raised issues on infrastructure and on salary increases not being sufficient.

Free State Province
Ms Motara, as Committee Whip, was tasked with presenting negotiating mandates of provinces whose delegates were not present in the meeting. She noted that the Free State had submitting a negotiating mandate in favour of the Bill. It had commented that, in respect of conditional grants, a bigger portion of the R193m from the National Health Grant should be allocated to the Free State Provincial Health Facility Revitalisation Grant because its major provincial hospitals and clinics were in dire need of maintenance and upgrades. The province also felt that its allocation to Basic Education should not be adjusted downwards because the Free State had to give nutritional support to learners.

Gauteng Province
Ms Motara then presented the Gauteng mandate, noting that this province had submitted a negotiating mandate in favour of the Bill. The Province had made comments on the Bill regarding its socio-economic impact, its financial implications and insight into the implications for different types of grants. The Finance Portfolio Committee of Gauteng recommended that projections on public service wage adjustments be improved to avoid funds earmarked for service delivery being diverted to salaries. It also recommended that the feasibility of projects to be implemented through conditional grants be examined prior to funding, to avoid the surrender of grants.  

KwaZulu-Natal Province
Mr L Nzimande (ANC, KwaZulu Natal) stated that this province supported the Bill. Comment was made that a reduction in the allocation to the province was made due to to a migration of people from the province.

Limpopo Province
Ms Motara, in the absence of a delegate from the Limpopo province, noted that the negotiating mandate was in favour of the Bill. Some specific issues had been raised.

Mpumalanga Province
Mr Essack quipped that this province had spent a great deal of time discussing President Zuma’s possible acquisition of an R4bn aircraft. He noted that the province “rubberstamped” and support the Bill.

Ms Motara asked whether it was in order for a Member to use the term “rubberstamped”.

The Chairperson confirmed that the Mpumalanga province supported the Bill.

Northern Cape Province
Mr De Beer said that his province voted in favour of the Bill. The provincial legislature had recommended that National Treasury should encourage provincial treasuries to assist municipalities in investing in the best billing systems and drafting relevant legislation. In addition attention and priority should be given to municipalities struggling with payment challenges.
 
North West Province
Ms Motara, in the absence of a delegate from the province, noted that North West had noted a mandate that was in favour of the Bill.

Western Cape Province
Mr O Terblanche (DA, Western Cape) informed the Committee that he had only received the Western Cape's negotiating mandate five minutes before the start of the meeting. He noted that the province did not support the Bill. He highlighted issues that needed to be looked at. He also noted that the programme disruptions of parliament impacted upon the province. The NA was only to deal with the 2015 DORB the following day, and this too had an impact on the province’s programme. A meeting with the Chairperson of the NCOP was planned, to discuss concerns around programme coordination. 

National Treasury Input
Mr Steven Kenyon, Director: Provincial Budgets, National Treasury said that National Treasury would liaise with the Committee staff and prepare a written response to issues raised by the provinces. 

Ms Dumebi Ubogu, Director: Provincial Fiscal Framework, National Treasury, said that many of the recommendations from provinces were to do with the seemingly low wage increments, but she noted that when the wage agreement came in, it had been higher than had been originally budgeted for. National Treasury calculated the shortfall for all provinces as R8.9bn.However the contingency reserve was only R5bn.National Treasury would find a way for the allocations of the R5bn contingency reserve and R3.8bn to go to provinces. National Treasury did a headcount on which of the provinces were the more labour intensive, and health and education were the sectors that were the most labour-intensive. The R3.8bn was spread across provinces. Given that the contingency reserve was only R5bn, it was impossible to cover the shortfall of R8.9bn. In relation to offsetting, she reported that in 2014/15, applications had been received for rollovers, of which some were approved but others not. In the past, if rollovers were not approved, then money would be refunded to National Treasury, and would be paid into the National Revenue Fund. In the 2015 DORB, provision was made that instead of actually returning the money, provinces would be permitted to keep it, but when the new allocations were made for 2015/16, the amount already held by provinces would be subtracted. This meant less actual transfer of funds. The allocation amounts for 2015/16 remained the same, but a portion of the funds may then already be held by provinces.

Mr Kenyon added that whilst the figures looked as if the provincial allocations were less, this was not in fact so and the 2015/16 actual rand amounts for programmes remained the same. He emphasised that National Treasury was planning to have a new equitable share formula for local government. This new equitable share formula gave larger equitable share allocations per capita to smaller and more rural municipalities. The full impact of the new formula would only be seen in 2017/18. National Treasury was thus on a transitional path.

In relation to infrastructure backlogs, Mr Kenyon said that the infrastructure grants were based on the extent of infrastructure backlogs in provinces. If there were higher levels of backlogs then there would be higher allocations. The speed with which backlogs were being reduced was a concern. Some issues were procurement issues and some were related to the rules attached to grants.

In the 2015 DORB, there were also reductions on two water indirect grants. There had been under spending and failure in delivery. There were strong feelings amongst members of provincial legislatures on failures in delivery. Huge underspending was taking place and measures were being put in place to address that. Amounts would be reduced in year, and this would allow for funding to be moved to other places where it could be used. He explained that shifts in grants were more about shifts in projects. The Northern Cape raised issues on billing systems and National Treasury shared those concerns, but felt that it was rather the management of the billing system that was the problem. He assured Members that a more comprehensive response from National Treasury would be provided to the Committee.

Mr Essack was worried that the new system on rollover requests, where the provinces were allowed to hold on to funds, could lead to fruitless and wasteful expenditure.

Ms Ubogu said that the new system on rollovers would essentially result in the provinces getting funds upfront, for the funding that had not been spent would actually stay in the account of provinces. Provinces however could not plan to spend them, because that would go against the rules until those funds had actually been approved for the following year.

Mr Kenyon said that there were no cash flow implications. The funds were simply retained. Legally, the funds could not be spent. It was a matter of whether the funds would go back to the National Revenue Fund, or would simply be offset against future transfers.

Mr Terblanche referred to the shortfall spoken about, and the point that additional funds could not be made available. He asked for clarity on the under-expenditure issues.

Ms Van Lingen referred to the response given by National Treasury on the new equitable share and stated that the supposedly “new” equitable share formula had been in place for three years. She asked what could be done about the reduction of indirect grants due to national departments not delivering.

Mr Kenyon said that the failure of national departments to deliver meant that they had to improve on their performance. National Treasury would assist national departments, but it was up to those departments and their accounting officers to make the necessary changes.

Mr De Beer suggested that the Committee refer back to the document of the Financial and Fiscal Commission (FFC). The FFC had done a review of the equitable share formula that was in use at the moment. 

The Chairperson stated that the Committee would appreciate a full written response from National Treasury.

The Chairperson then asked Members to formally approve the negotiating mandates as presented. He noted that there were eight provinces in favour and one province not in favour of the 2015 DORB. The majority of provinces was therefore in support of the 2015 DORB.

He noted that at the next meeting, scheduled for Thursday, 19 November 2015 at 16:30, the Committee would deal with final mandates of provinces on the 2015 DORB.

The meeting was adjourned.
 

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