Division of Revenue Bill: negotiating mandates

NCOP Finance

19 March 2003
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Meeting report

FINANCE SELECT COMMITTEE

FINANCE SELECT COMMITTEE
20 March 2003
DIVISION OF REVENUE BILL: NEGOTIATING MANDATES

Chairperson: Ms D Mahlangu (ANC)

Documents received:
Negotiating Mandates: North West, Free State, Western Cape, KwaZulu-Natal, Northern Cape (email
info@pmg.org.za for document
Free State negotiating mandate (Appendix 1)
Eastern Cape negotiating mandate(Appendix 2)
Gauteng negotiating mandate (Appendix 3)

SUMMARY
The provincial negotiating mandates were discussed and the consensus was to accept the Division of Revenue Bill. The Limpopo and Mpumalanga provinces failed to provide mandates. The Chairperson expressed disappointment at the quality of the negotiating mandates with the Free State, Gauteng and Eastern Province being the exceptions. The other mandates were very vague or said nothing. She even doubted that discussion on the bill had taken place in some provinces. A committee member suggested that MPs are travelling to the provinces but not doing the work they should be doing in the provinces. Treasury suggested that a new format be sought for negotiating mandates.

MINUTES
North West

The mandate agreed to the Bill. It raised a concern that the legislative imperatives for national and provincial government to support local government need to be enforced and more closely monitored.

Free State

The mandate agreed to the Bill but with the some proposed amendments.

Mr Kahla (Legal advisor, Treasury) thanked the province for its thorough work and responded to the proposed amendments by the province:

Clause 1: Mr Kahla said that it must be read in accordance with other legislation and the definition of a municipal manager must be taken into account. He added that a municipal accounting officer is the same as the municipal manager.

Clause 11: He agreed that to ensure consistency, "installation" must be replaced by "construction".

Clause 20(1) (f): The Portfolio Committee on Finance had corrected this clause.

Clause 25(3) and (5): Mr Kahla clarified that this deals with erroneous transfers and not reallocations.

Clause 27(4): The proposed change would be made for consistency.

Schedule 3: The spelling error would be corrected.

Schedule 6A: The spelling error would be corrected.

Western Cape
Mr Durr (ACDP) thanked the Treasury for the accommodation of seven of their nine previous proposals. He stated that Section 17(1) does not make provision for the publishing in the Government Gazette of allocations for additional amounts or the reallocation of amounts. He mentioned the example of a disaster relief fund that would have to be reallocated if there were no disasters. He expressed uncertainty whether this could be dealt with through normal budgeting processes or whether it must be gazetted.

Mr Kahla replied that Section 9 allows for other allocations at a later stage in the form of adjustment budgets.

Their mandate agreed to the Bill.

KwaZulu-Natal

Mr Ralane (ANC) stated that KwaZulu-Natal would like to send a representative to this committee.

Ms Mahlangu replied that she has raised that issue before and will do so again.

Their mandate agreed to the Bill.

Gauteng
Dr Conroy (NNP) stated that they are happy with the Bill.

Their mandate agreed to the Bill.

Eastern Cape
Mr Kahla stated that most of the Eastern Cape negotiating mandate consists of general comments. On their suggestion in 5.2 on clause 20 he said he would rather not comment on issues dealing with the Auditor General without him being present. He added that these issues have been thoroughly discussed.

On their amendment to bring back clause 15(2) he said that clause 17(1) in the new Bill covers it.

Their mandate agreed to the Bill.

Northern Cape
Their mandate agreed to the Bill.

Limpopo
Due to technical reasons no mandate was received. Assurance was given that discussions were held in the province.

Mpumalanga
The Chair remarked that the Mpumalanga representative, Mr Taabe (ANC), had indicated he was coming to the meeting but had not appeared. No apologies were tendered. She added that he had told her that they had problems with the scheduling of such a meeting. The chair said that she was concerned about Mpumalanga's lack of capacity.

Mr Ralane voiced his concern that members are using up travel allowances but are not doing the work they should be doing in the provinces. He stated that Mr Taabe had been in Parliament the day before.

General comments
The Chairperson expressed her personal view that the quality of the negotiating mandates was disappointing. The Free State, Gauteng and Eastern Province were the exceptions. The other mandates were very vague or said nothing. She added that they could not even be sure that discussions on the bill had taken place at provincial level.

Mr Kahla suggested that a new format be sought for negotiating mandates. He added that currently everyone is making sure they comply with the legal requirements. A new format might be needed to align the process.

Appendix 1:
FREE STATE LEGISLATURE
DIVISION OF REVENUE NEGOTIATING MANDATE

1. INTRODUCTION
The Division of Revenue Bill [B9 -2003] was referred the Finance Committee by the Prioritising Committee.

This Bill provides for the equitable division of revenue anticipated to be raised nationally among the national provincial and local spheres of government for the 200312004 financial year. It further provides for the reporting the requirements for allocations pursuant to the division of revenue.

2. MEMBERS OF THE COMMITTEE
The Committee comprises of the following Members:

Aucamp, I (Member)
Dlungwana P (Member)
Makgoe, P. (Member)
Marais, A (Chairperson)
Monareng, N (Member)
Oosthuizen, A. P (Member)
Worth, D (Member)

3. PROCEDURE OF THE COMMITTEE

On the 17 and 18 March 2003, the Finance Committee held meetings to consider the Division of Revenue Bill B9-2OO3.

The Division Revenue Bill [B9-2003] was referred to the Finance Committee on 04 March 2003 by the Prioritising Committee for consideration and report back.


4. AMENDMENTS
The Committee effected the following amendments on the Division of Revenue Bill,

CLAUSE I

1 Page 2 in line 13 after the word "municipal", to delete the word "manager" and to substitute "accounting officer'.

Motivation: Defined words are used in the body of the bill, not defining words.

CLAUSE 11

Page 6 in line 39 before the word "installation" to insert the word "construction".

Motivation: Page 33 schedule 6A allocation under "Purpose" provision is made for construction of new facilities.

CLAUSE 15(b) and (C)

Page 8 in line 15 after "reported on"1 to insert "and for the financial year up to the end of that month"

Page 5 in line 16 after "allocation"1 to insert "and for the financial year up to the end of that month".

Motivation: See clause 15(a).

CLAUSE 20(1) (f)

Page 10 in line 19 to delete "act" and to substitute "Act".

Motivation: Capital letter "A" inserted.

CLAUSE 25(3) and (5)

Page 11 in line 39 after '"schedule" to insert "or any other transfer".

Page 11 in line 46 after to insert "or any other transfer".

Motivation: The bill recognizes payment to provinces and local sphere of government outside of the schedules in accordance with clause 6(3). Clause 23 also provides for reallocation between municipalities.

CLAUSE 27(4)

Page 12 in line 17 before "obligation" to insert "function or".

Motivation: Clause 27(1) refers to functions and obligations1 not only obligations.

SCHEDULE 3

Page 19 under Motheo District Municipality to delete "Mansopa" and to substitute "Mantsopa".

Motivation: correct spelling error.

SCHEDULE 6A

Page 33 under "Purpose", to delete the word "construction" and to substitute the word "constructions"

Motivation: correct spelling error.

5 RECOMMENDATIONS
The Finance Committee recommends that:

5.1 Authority be conferred to the Free State Delegation, to vote for the adoption of the Division of Revenue Bill [B~2003] with aforementioned amendments.

5.2 The Portfolio Committee on Finance be authorised by this House to consider amendments proposed the Select Committee National Council of Provinces
(NCOP).

5.3 The Portfolio Committee on Finance on Finance be authorised by this House to confer the final mandate to the NCOP.

Appendix 2
EASTERN CAPE PROVINCIAL LEGISLATION
STANDING COMMITTEE ON FINANCE AND PROVINCIAL EXPENDITURE
Report on mandate to present the Province's position on the Division of Revenue Bill [B9B-2003]

1. Terms of reference
The Division of Revenue [139B-2003] was referred to the Standing Committee on Finance and Provincial Expenditure by the NCOP

2. Briefing
On 17 March 2003, Mr Sogoni, Member of the Select Committee, NCOP, briefed the committee about the legal implications of the Bill.

3. Consultation
There is no need to invite inputs from any stakeholders.

4. The Committee considered the Bill

5. Committee's Inputs

The Committee has made the following inputs:

5.1 Clause 5 - Equitable share for local government
The spirit cooperative governance and inter-governmental relation has been captured in this clause The couching in this clause takes care of planning and budgeting where local government is expected to produce and IDP( Integrated Development Plan) that is matched with Budget. The local government now knows

four months before their financial year what funds would flow from national raised revenue. This practice not only takes care chapter 3 of the Constitution but also takes care of Section 154(1) of the Constitution as well as Clause 13 of the Division of Revenue (139B-2003)

5.2 Clause 20 - Duties of Auditor-General
Among the duties of the Auditor-General, an addition needs to be made that the Auditor-General should issue a special report on conditional grants that flow from National Departments to Provinces as well as in Municipalities for purposes of accountability and effectiveness of service delivery where these conditional grants are concerned.

The sub-clause 20(2), needs to be taken out but rather insert that the Auditor-General in the normal auditing of National and Provincial departments should pronounce on the value for money and the effectiveness of the internal audit of the respective departments.

This sub-clause should be captured under a separate title as a standalone.

5.3 Clause 27 - Funds to follow transfer of functions or obligations
Notwithstanding what is captured in Section 35 of the PFMA on unfounded mandates which exclude the local government, we should include clear terms in the Division of Revenue Bill, Clause 27, that mandates given by National and Provinces to Local governments should be done in the spirit of Section 35 of the PFMA.

6. General Comments
6.1 Clause 2(b)- Objections of Act
The committee welcomes the improvement of this sub-section as compared to previous Division of Revenue.

6.2 Clause 7(5) (6) (7)- Other Allocations to Provinces and Municipalities
These sub-clauses are more elaborative and are very welcomed as an improvement. They show that there is an effort to assist provinces and local governments.

6.3 Clause 8- Transfers to entities
The change captured in this clause is welcomed because it takes the spirit of Chapter 3 and Section 154 of the Constitution.

6.4 Clause 12(c) - Transfer of assets to municipalities
The sub-clause is welcomed because it brings the element of accountability.

6.5 Clause 13(3)- Municipal capacity building allocations
The committee is of the view that monitoring should not be done annually but also quarterly. Therefore, Clause 13(3) line 29, should read as follows:
"....in the quarterly report as well as annual report of the department"

This sub-clause is also welcomed as an improvement on accountability

6.6 Clause 15- Duties of transferring provincial officer
The subclause 15(2) which appeared on the 2002 Division of Revenue should be brought back because it served to curtail the dumping of funds between municipalities.

6.7 Clause 16(3) (4)- Duties of receiving officer
The inclusion of these sub-clauses are welcomed and also serve to curtail the damping of funds between municipalities.

6.8 Clause 17(1) (2)- Duties of provincial accounting officers
The inclusion of these duties of provincial accounting officers is welcomed which is in line with Section 38 & 39 of the PFMA.

Appendix 3:
GAUTENG LEGISLATURE
FINANCE COMMITTEE

NEGOTIATING MANDATE ON THE DIVISION OF REVENUE BILL [B9B-2003]

18 March 2003

1 INTRODUCTION

The Division of Revenue Bill [B9B-2003] was formally referred to the Finance Committee on

Thursday, 13 March 2003. In terms of Section 10 of the Intergovernmental Fiscal Relations Act, 1997 (Act No 97 of 1997) ("the Act"), each year when the annual budget is introduced, the Minister of Finance must introduce in the National Assembly a Division of Revenue Bill for the financial year to which that budget relates.

2 PROCESS FOLLOWED

The Standing Committee on Finance deliberated on the Division of Revenue Bill, a Section 76 Bill. Mr Uhuru Moiloa attended the briefing from National Treasury and public hearings on the Division of Revenue Bill held by the NCOP on Monday 10 and Tuesday 11 March 2003.

Ms Qedani Mahlangu, the Gauteng Permanent Delegate to the NCOP briefed the Finance Committee on Monday 17 March 2003. The briefing included input on the hearings that were held on Wednesday 12 and Thursday 13 March 2003. The submission of the Financial and Fiscal Commission on the Division of Revenue for 2003-2004 had already been considered by the Committee. The response from National Treasury which is contained in Annexure E of the Budget Review 2003 was also deliberated upon by Committee. The submissions from the Department of Provincial and Local Government, the Office of the Auditor-General and the South African Local Government Association (SALGA) were also considered before the Committee began its deliberations and identified issues on the principle and the detail of the bill for the negotiating mandate. The negotiating mandate on the Division of Revenue {B9B-2003] was unanimously adopted by the committee.

3 IMPLICATIONS OF THE BILL

The Division of Revenue Bill reflects an extensive consultative process with the nine provinces through the MECs for Finance, the Financial and Fiscal Commission, which is an independent statutory body, the Budget Council, the Budget Forum, SALGA, the Minister's Committee on the Budget and Cabinet. After this process of consultation the sharing of revenue is implemented on the vertical division between the three spheres of government and the horizontal (formula based) division to the nine provinces. This complies with the spirit and letter of Section 214(2) of the Constitution which requires that the Bill may only be enacted after the provincial and local spheres of government and the FFC have been consulted, and after any recommendations of the FFC have been considered.

The principle is also informed by Section 214(1) of the Constitution which requires that Section 214 (2) (a)-(j) should be taken in to account. These include national interest, provision for debt, needs of national government and emergencies, the allocation of resources to provide for basic services and to meet developmental needs, fiscal capacity and efficiency of provincial and local spheres of government, reduction of economic disparities and promotion of stability & predictability.

The compliance of the Division of Revenue Bill with the requirements of the Public Finance Management Act (PFMA); Act 1 of 1999 (as amended by Act 29 of 1999) was also noted. Conditional Grants to be transferred to the Gauteng Province were taken cognisance of by the committee.

3.1 Fiscal equity, developmental needs and economic disparities

Developmental needs are encapsulated in the equitable share formulae for provincial and local government and in specific conditional grants. The infrastructure grants and increasing capital budgets are geared growing economic and social development of provinces and municipalities. The share of both provinces has increased from 56,0 percent in 2002/ 03 to 56,8 percent in 2003/ 04 and the local government share has increased from 3,6 percent in 2002/03 to 4,3 percent in 2003/ 04. The prioritisation of nodal areas in the allocation of local government grants also seeks to address disparities among local authorities. However, a disaggregation of the 35 percent allocation to urban nodes and 65 percent to rural nodes would increase transparency and enable more effective monitoring of this grant.

There is greater recognition in this division of revenue bill of the economic and demographic disparities between and within provinces and municipalities. The policy priority of "pushing back the frontiers of poverty" is directly addressed through the equitable share and the infrastructure grant formulae which are redistributive towards poorer provinces and municipalities. The phased extension of the child support grant to children up to 14 years will also partly address social disparities and alleviate poverty.

The policy imperatives that seek to address urban decay is not underpinned with the revenue allocation. However the committee noted that the Minister of National Treasury, in his budget speech, referred to incentives to encourage urban renewal. These incentives which allow for a 20 percent depreciation allowance over a five-year period in certain urban areas in respect of construction or refurbishment.

Fiscal efficiency indicators are developed but these are also dependent upon standardisation of budget and expenditure classifications which is apparent in Gauteng's Department of Social Services and Population Development in the 2003-2004 provincial budget.

3.2 Obligations in terms of national legislation

If sufficient funds follow function, the issue of unfunded mandates should not arise as this division revenue underpins the requirements for funds to follow function which is reflected in the increased allocations to provincial and local government over the 2002- MTEF baseline allocations. This is exemplified in the 2003 MTEF and the division of revenue which provides for the funding of statutory obligations arising from increases in social security grants and the phased in extension of the new age limit from seven to fourteen years of age. Additional beneficiaries beyond the estimated figure at the time of budgeting are funded by National Government during the adjustments.

3.3 Predictability and stability and the need for flexibility to respond to emergencies

The bill provide for certainty in respect of equitable allocations to provinces which is guaranteed for the 2003-2004 financial year and estimated forward for two years. The publication for the first time of the allocations to municipalities extend this certainty and enables these government structures to plan more effectively by taking into account provincial and national grants in their respective budgets. This should also contribute to more effective municipal financial management and consequent effective delivery of services.

In terms of the PFMA which makes provision for the allocation of funds to deal with emergency situations the national government has established a contingency reserve fund. "Unforeseeable and unavoidable" expenditure is dealt with in the PFMA section 30(2).

4 COMMENTS MADE BY FINANCE COMMITTEE ON THE PRINCIPLE AND PROVISIONS OF THE BILL

This financial year's division of revenue takes account of recent developments in the Intergovernmental fiscal relations systems relating to social security reforms and local government in particular. The committee also welcomes the publication of the Intergovernmental Fiscal Review (IGFR) in the first week of April to assist portfolio committees in their oversight of the budget and to facilitate hearings.

    1. The concerns raised by the Department of Provincial and Local Government (DPLG) need for the provisions to align programmatic and conditional grant planning and budgeting across the three spheres of government is shared by this Finance Committee.
    2. A further concern raised by DPLG on funding mechanisms for nodes and funding for policy changes is also shared by this Finance Committee. While the committee supports the policy imperatives raised by the President and detailed by the Minister of Finance there is a need for this bill to address the funding mechanism.
    3. The decision of National Treasury to take greater cognisance of the fiscal imbalances faced by many municipalities and the greater need for service delivery by this sphere has been addressed through an increase of 12.2 percent growth in local government transfers. Over the MTEF this represents R7.3 billion more. The equitable share grows from 45 percent to 53 percent of total transfers in the MTEF to municipalities and the conditional grants make up the balance.
    4. The committee welcomes the decision of Treasury that the contingency reserve for the two outer years includes both a policy reserve and an emergency reserve for unforeseeable and unavoidable expenditure and that in the next budget these funds are then divided between the new spending priorities and in-year emergency reserve.
    5. The committee is of the view that the National Department of Social Development and the Department of Public Service and Administration in conjunction with Provincial Governments should pay closer attention to the institutional arrangements of the establishment of the National Grants Agency so as to ensure efficient delivery of Social Security payments. Given the concerns raised by Gauteng last year about the efficiency of centralising the payment of social grants, the committee is of the opinion that robust mechanisms should be developed and the implementation plan scrutinised for efficacy in quality delivery through the proposed National Grants Agency.
    6. The committee remains concerned about the timing of the tabling of the Division of Revenue Bill. It is suggested that this be reviewed within the budget reform process so that it occurs prior to the Medium Term Budget Policy Statement.

5 NEGOTIATING POSITION ADOPTED BY THE COMMITTEE ON THE DETAIL OF THE BILL

The committee agrees to all of the amendments already taken by the Portfolio Committee on Finance (National Assembly) and reflected in the Division of Revenue [B9B-2003]. The Finance Committee welcomed the response from National Treasury to the FFC submission noted in the Budget Review 2003 Annexure E. The concerns of the Auditor-General in respect of Clause 5(7) relating to uniform treasury norms and standards that this should also include the non-payment of audit fees by municipalities are appreciated by the committee. However in the opinion of the Finance Committee this should be addressed by the Municipal Finance Management Bill when it is enacted.

6 RECOMMENDATIONS

The committee wishes to make the following recommendations:

  • There should be a greater interaction between the departments with respect to conditional grants which address programmes that complement each other.
  • The committee is of the opinion that the allocations in respect of non-infrastructural funding should reflect the details of the breakdown of the 65 percent rural and 35 percent urban grant for identified nodal development.

7 PRINCIPLE AND DETAIL OF THE BILL

The Finance Standing Committee supports the principle and detail of the Division of Revenue Bill [B9B - 2003].

 

J L Fubbs

Chairperson: Finance Standing Committee


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