Division of Revenue Bill [B2-2016]: public hearings

NCOP Appropriations

12 April 2016
Chairperson: Mr C De Beer (ANC, Northern Cape) (Acting)
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Meeting Summary

The SALGA submission stated that there had to be increased accountability and consequences for management of limited resources by local government. Within the context of decreased allocations, SALGA argued for protection of allocations to poor and rural municipalities. The serious decline in the Municipal Systems Improvement Grant was cause for concern. Additional revenue raising capacity of local government had to be pursued. Municipal revenue collection, credit control and cash flow management remained a big challenge for municipalities. The Committee was asked to intervene for a balanced approach between municipal obligations and Eskom issues.

The COSATU submission noted the economic context of increasing unemployment, low growth, declining tax revenues and infrastructure challenges. Fiscal responses had to balance austerity and economic stimulus. There were comments on expenditure with reference to austerity, inflationary increases, the public sector wage bill, wasteful and bling expenditure, consultants, labour brokers and outsourcing, and corruption. There was concern over emerging farmer failures, farm workers and land equity, manufacturing and re-industrialisation, Eskom tariffs and wastage, nuclear energy, and the water crisis.

The Financial and Fiscal Commission submission noted that national indirect transfers to provinces and municipalities were declining. State owned enterprises (SOEs) dominated government infrastructure spending, followed by provinces and local government. Provincial conditional grants were revised downwards by R3.5 billion over the Medium Term Expenditure Framework (MTEF). Reduction of Local Equitable Share (LES) transfers were mainly on institutional and community service components. Various conditional grants declined during the 2016 MTEF, including the Municipal Infrastructure Grant (MIG). Local government grants were under review. Efforts to protect infrastructure allocation and improvement of the system of local conditional transfers were commendable.

The written submission by Laura Nxumalo dealt with rail transport infrastructure and logistics, and health services.

The Chairperson urged that Eskom be called to the Committee about Treasury withholding of the equitable share to municipalities due to their debt owed to Eskom. He said municipal leaders had to be in possession of the DoRB especially Clause 19 Clarifying provisions for withholding and stopping of allocations. He commented on the allocation for bulk water increases. He said more role players had to be engaged about the Early Childhood Development grant.

National Treasury provided a response to the submissions. It commented on bulk water increases saying these were covered. On the reduction of personnel, it noted that reduction of staff had to been done through re-balancing of non-core staff, not core staff. Instead there had been administrative staff appointments but reductions in the number of teachers, doctors and nurses. There were comments on the Human Settlements Development Grant. The Incentives Grant was not to penalise undercapacitated provinces. Provinces that did not receive the incentives grant in the previous year had to be assisted to build infrastructure capability. There were comments on the classification of railway corridors according to passenger demand, and reduction of risk factors in the management of non-communicable diseases.

Meeting report

Mr C De Beer (ANC, Northern Cape) was elected Acting Chairperson as Mr Mohai was representing the Committee at a meeting in Washington, which coincided with a meeting of the IMF, attended by the Minister.
 
The Acting Chairperson remarked that the local elections were part of democracy. It was democracy in action. The day’s meeting was an important one, as Committee would hear from the public on the Division of Revenue Bill. There were briefings to provincial legislatures this week and the week before by the Finance Select Committee, assisted by National Treasury. The public hearing for the Northern Cape would be on the 14 April.


The objectives pursued were good governance and financial management, accountability and a public ethic that valued honesty and fairness, and accountability to the taxpayer about how tax money was spent. The budget projected economic growth of less than one percent. There were fiscal pressures and low revenue collection, even though SARS had announced that it had broken through the trillion barrier. There were inflationary pressures on the cost of goods and services. The Minister had come up with what to do about narrowing the budget deficit, and lowering expenditure ceilings. Out of a total of R1.3 trillion, R855.1 billion would go to departments and provincial governments, and R410.7 billion to local government. The equitable share was R4.9 billion lower than the 2015 Medium Term Budget Policy Statement (MTBPS). There were changes to the provincial conditional grant framework. The Chairperson welcomed SALGA, COSATU and the FFC. He noted that there was a written submission from Laurika Nxumalo. He wished that there were more such submissions from the public, so that their views could be noted in public hearings. He said SALGA was an important part of the consultation process, as it was part of the Budget Council.

South African Local Government Association (SALGA) submission on Division of Revenue Bill (DoRB)
Mr Simphiwe Dzongwe, Executive Director: Municipal Finance, presented. The DoRB 2016 was presented against the backdrop of a challenging economic outlook for the country, declining GDP projections and increasing fiscal pressures. The Budget Speech by the Minister indicated decreasing growth due to global and domestic factors. There would have to be increased accountability and consequences for the management of limited resources by local government. Allocations to local government indicated a decline from what was projected in the MTBPS. Within the context of decreasing allocations, SALGA had argued for the protection of allocations to poor and rural municipalities. The serious decline of the Municipal Systems Improvement Grant (MSIG) over the MTEF period was cause for concern. SALGA would urge municipalities to comply with an appeal for reprioritisation and frugal management of scarce resources. Additional revenue raising capacity of local government needed to be pursued. Local government had to explore financial instruments including borrowings and the bond market in the context of pool financing amongst stronger municipalities. Municipal revenue collection, credit control and cash flow management remained a big challenge. The Committee was asked to intervene for a balanced approach between municipal obligations and Eskom issues.

The Chairperson remarked that important matters had been raised. He was looking forward to the SALGA conference on 18 to 20 May. SALGA had voiced concern over revenue collection by municipalities in earlier Committee meetings. Municipalities had to learn from best practice. About Eskom, he noted that the Committee had called Treasury twice about the withholding of the equitable share from municipalities. Such meetings had to be continued. Eskom had to be called in so that it could be sorted out in Parliament. The objective would not be to criticise but to assist. The NCOP had to provide direction. Stakeholders had to be called in.

COSATU submission on the 2016/17 Budget
Mr Matthew Parks, COSATU Parliamentary Officer, noted the economic context included increasing unemployment, low growth and declining tax revenues, and infrastructure challenges. Fiscal responses had to balance austerity and economic stimulus.

Mr Parks commented on expenditure with reference to austerity; inflationary increases; the public service wage bill; wasteful and bling expenditure; consultants; labour brokers and outsourcing, and corruption.

The Committee was taken through budget concerns in a number of government departments. Under Rural Development and Land Reform, COSATU was concerned about emerging farmer failures, and farm workers and land equity. Under Trade and Industry, there was concern about manufacturing and re-industrialisation. Under Energy, there was concern about renewable energy investment and jobs, Eskom tariffs and wastage, and nuclear energy. Issues to be considered included the water crisis; outsourcing, retrenchments and labour brokering, and privatisation.

The Chairperson remarked that a lot of issues had been highlighted. The briefing sensitised the Committee about what to zoom into during oversight. Issues alluded to could be seen along the N1 to Saldanha. He referred to last few pages of the DoRB, with reference to the allocation of the bulk water supply. In his own region of Namaqua, water was a scarce commodity.

Financial and Fiscal Commission (FFC) submission on the 2016 DoRB
The submission was presented by Mr Bongani Khumalo, Acting Chairperson and Chief Executive; Dr Mkhululi Ncube: Program Manager: Local Government Unit, Programme Manager; Mr Ghalieb Dawood, Programme Manager: Provincial Budget Analysis Unit, and Dr Hammed Amusa, Programme Manager: Macro-Economics and Public Finance Unit.

Major revisions in the 2016 DoRB were those related to allowing grant funds to be reprioritised for disaster relief; responding to corruption in procurement; transitional measures for municipal elections in 2016; clarifying provisions for withholding and stopping of allocations, and gazetting human settlement allocations to cities. National indirect transfers to provinces and municipalities were declining. There were allocations to Higher Education to address student debt and freezing of fee increases. State Owned Entities (SOEs) continued to dominate government infrastructure spending, followed by provinces and municipalities. Provincial conditional grants were revised downwards by R3.5 billion over the MTEF. Budget cuts in Health had to be informed by thorough expenditure reviews. The FFC was concerned about numerous changes to Health conditional grants. Local governments would be affected by the economic growth slowdown; the recession facing mining and agriculture, the prevailing drought and oncoming local government elections. The number of municipalities would be reduced from 287 to 257. Reductions in Local Equitable Share (LES) transfers were mainly on the institutional and community services components. During the 2016 MTEF various conditional grants would face cuts, including the Municipal Infrastructure Grant (MIG). Local government infrastructure grants were currently undergoing review. Government had agreed with FFC recommendations tabled in May 2015, and was already implementing some of them. There were also government responses to recommendations by the Appropriations Select Committee. Efforts to protect infrastructure allocation and to improve the system of local conditional transfers were commendable.

The Chairperson remarked that the FFC emphasised Clause 19 (Clarifying provisions for withholding and stopping of allocations). When engaging with municipalities and constituencies, this had to be read to them. Municipal leaders, mayors and councillors had to be in possession of the DoRB. He referred to recommendations made by the FFC about the Early Childhood Development (ECD) grant. Government replied that it was looking at ways to expand infrastructure. Responsibility would be divided between non profit organisations, municipalities and provinces. The ECD grant remained a complex issue. Other role players had to be engaged about the grant, as it formed part of the foundation phase of a learner’s life, for the child to succeed later.

The Chairperson noted that there was a one page submission by Laurika Nxumalo, which dealt with health and welfare services, and transport logistics infrastructure. Ms Yolande Brown, Committee Researcher, had responded to her. That document was not distributed, but e-mailed to members. It would form part of the Committee report on the hearings.

The Chairperson asked for questions from Members, but there were none. He asked that Treasury reply to the submissions. Negotiating mandates would be dealt with on 20 April, when the Committee would be in the Eden District Municipality at George for the Taking Parliament to the People programme. The Treasury could choose whether to reply at once or at a later date.

The Treasury elected to reply during the current meeting.

National Treasury response to submissions
Ms Wendy Fanoe, Chief Director: Integrated Policy Planning, proposed that she would not highlight items about which there was general agreement. She would highlight issues that the Committee had to take into account. One of the functions raised by SALGA was the bulk water increase. When the DoRB was tabled, the bulk increase for 2016/17 was not yet known. It was only announced two days later. What could be confusing to the Committee was that there were different bulk increases for general and municipalities, with clauses that kicked in very differently. The municipal increase was 7.9 percent for 2016/17. The Municipal Equitable Share (MES) currently provided for 8 percent, which meant that municipalities were overfunded by 0.1 percent. There was adequate funding for the increase.

Ms Fanoe referred to the MSCOA. No more provision was made for a municipal improvement grant. There was another grant, the Municipal Finance Management Grant, that provided for that. Page 195 referred to the conditional grant framework for the Financial Management Grant. It provided for much, including the Municipal Standards Charter. Municipalities would still get funding to implement the Municipal Standard Chart of Accounts (mSCOA). SALGA highlighted important issues and indicated ongoing work done, but a lot of the work was related to other government legislation besides the DoRB, like the Municipal Finance Management Act; the Municipal Powers and Functions Act, and the Municipal Assistance Act. SALGA worked in collaboration with the FFC, Treasury and the Department of Cooperative Governance (DCoG). As progress was made, it would be communicated to the Committee.

Ms Fanoe said Mr De Beer touched on an important issue when he proposed that Eskom be called to the Committee about withholding issues. It was a good proposal and it could be useful to have a joint meeting with the Appropriations Standing Committee, which had also raised it as a concern.

Ms Fanoe said that COSATU had made useful comments, particularly about personnel as it related to the provinces. A significant number of government employees were appointed by the provinces. Treasury observed that and worked with the provinces. The Budget Review had raised the issue that re-balancing of government appointments was not done on core staff but on non-core staff. There was a government focus on non-core staff. There was a reduction of staff in the provinces, but not where Treasury would want it. Administrative staff had been appointed but there was a reduction in the number of teachers, doctors and nurses. Service delivery had to be protected. Re-balancing had not been done on core staff. When plans were put in place, the Committee would be informed, and it would be raised as an issue in the Medium Term Budget Policy Statement (MTBPS). Many of COSATU recommendations were linked more to the Fiscal Framework and the Appropriation Bill. Quite a lot of the submission dealt with national departments, and it would be more appropriate to deal with that when the Appropriation Bill was discussed.

In response to the FFC, Ms Fanoe noted that national priority expenditure funded by government conditional grants were under pressure in 2016/17. She referred to two documents. The first was Table W1.6 on page 74 of the DoRB. It indicated where debt reductions had been made. The Human Settlements Development Grant was referred to. It had to be read in conjunction with the third paragraph of page 70 of the Budget Review: The Department of Human Settlements was reviewing laws and policies that governed its activities, for provisions to improve service delivery. In the interim both the Human Settlements development grant for provinces and urban settlements and the development grant for municipalities were re-prioritised, but could still allow allocations for service grants. Both grants were growing at a fast pace, and the Department had to re-balance its policies. The incentive grant was not to penalise undercapacitated provinces. Provinces that did not receive the incentive grant in the previous year had to be assisted to build infrastructure capability.

Ms Fanoe responded to the written submission by Laurika Nxumalo. The submission dealt firstly with the De Wildt to Pretoria and the Mabopane to Pretoria railway lines. The Passenger Rail Agency of South Africa (PRASA) was making big investments in programmes that dealt with neglected capital infrastructure assets, and rolling stock. There was classification and prioritisation of corridors according to passenger demand. Spending was prioritised according to assets, also Metrorail services. The Mabopane to Pretoria line fell under priority A. It was one of the busiest routes that accommodated 100 000 passengers per weekday. The De Wildt to Pretoria line was a corridor C line with a lower passenger rate of 75 000 per weekday. Both were identified for investment. It had to be noted that both the De Wildt and Mabopane lines to Pretoria were subject to cable theft. Some of the improvements were related to security investments.

On the health comments in the Nxumalo submission, Ms Fanoe referred to the Department of Health report of 2014/15, which aimed at the reduction of risk factors in the management of non-communicable diseases, a key issue for DoH. A directive had been issued to all people who received screening for HIV/AIDS and counselling, and also to people who received screening for hypertension and blood glucose. The DoH presented an integrated chronic disease manual on its website, to provide for interventions that started with primary prevention. The chronic disease model was based on prevention and early detection. The secondary phase was treatment and care, with rehabilitation as a tertiary phase. Diseases that were prioritised were hypertension, diabetes, asthma, epilepsy and mental illness. It was a key strategy by the National department, implemented by the provinces. Funding was through the Provincial Equitable Share (PES). The strategy had to prioritised and rolled out by national and provincial departments.
 

He asked that Ms Nxumalo’s address be found, to confirm that her submission had been dealt with. She was also welcome to visit Parliament, as it was there for the people.

The Chairperson asked that Treasury put its response to the submissions in writing, so that it could become part of the Committee Report.

He told Members that it would be necessary to convene a meeting as the Finance Select Committee to adopt a Committee Report on the Eden District Municipality. [The Finance and Appropriation Select Committees are composed of the same Members, but with two different Chairpersons. As the acting Chairperson of the day is also the designated Chairperson of the Finance Select Committee, he was empowered to call a Finance Select Committee meeting]. There had been engagement with the Western Cape Treasury. The adopted Committee Report had to become part of a package to be dealt with in the following week when the Committee would be in the Eden District Municipality for the Taking Parliament to the People programme.

Committee matters
Adoption of minutes
Minutes were adopted of 25 November; 27 November; 17 February; 26 February; 1 March, and 5 April.

Committee programme
The Chairperson asked Ms Motara, who was part of the steering committee, to comment on the Committee programme.

Ms T Motara (ANC, Gauteng) noted that she had discussed the programme with the Secretary. There were no changes. Negotiating mandates had been concluded for all provinces except North West. It would be dealt with on Wednesday in the following week. The rest of the programme remained the same. There was a deadline for the tabling of the DoRB in the House, but no date had as yet been decided on. The constituency week stayed the same. There was a meeting of the Finance Select Committee scheduled for the next day.

The Chairperson said that nine provincial treasuries had to be met with.

Mr F Essack (DA, Mpumalanga) expressed concern about how nine provincial treasuries could be fitted into the month of May. Budget debates were coming up. Nothing was lined up for the rest of the week. Time was being wasted.

The Chairperson replied that he had consulted with the Secretary. Two provinces would be included per meeting to allow for thorough interrogation. The today’s hearings would be referred to. Northern Cape had to explain what had happened in that province. There were two sessions per year with the provinces. It was covered by the Committee programme.

Ms Motara noted that the scheduled meeting with the Land Bank on the following day was postponed. It was out of the Committee’s hands. It was not possible to have a Committee meeting on Friday. The process would be managed going forward. It was not possible to meet with the provincial treasuries on a quarterly basis. Meetings twice a year provided a lot of information.

The Chairperson noted that Fridays would be used for joint committee meetings.

At this point the Chairperson convened a meeting of the Finance Select Committee.

Finance Select Committee Report on the Eden District Municipality
The Chairperson noted that the Finance Select Committee would meet with the provincial MEC. The Committee wanted to know what had happened to the allocated funds. The engagement of the following week would be entered into as the Finance Select Committee. That Committee would have to engage with seven towns where programmes were rolled out.

Ms Motara added that the steering committee had concluded the programme for next week and it would be sent to Members.

The Chairperson noted that bookings for George had been received. The Committee Report on the Eden District Municipality was part of the package for the following week and he submitted it to the Committee.

The Committee Report on the Eden District Municipality was presented for adoption, and adopted.

The Chairperson thanked staff for their commitment. The Committee was one of the busiest, especially in the NCOP.

Meeting adjourned.

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