Division of Revenue Amendment Bill [B15-2016]: National Treasury briefing

Standing Committee on Appropriations

10 November 2016
Chairperson: Ms Y Phosa (ANC) and Mr S Mohai (ANC)
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Meeting Summary

The National Treasury briefed the Standing and Select Committees on Appropriations on the Division of Revenue Amendment Bill.

On provincial allocations, it was reported that R275.7 million would be rolled over from allocations made in 2015/16 on the provincial roads maintenance grant for KwaZulu-Natal. These funds had not been transferred in 2015/16 because the province had not met the reporting requirements for the grant. The province had, however, spent its own funds on road maintenance and had subsequently met the reporting requirements. A further R9 million would be added to the direct national health insurance (NHI) grant to fund the strengthening of health information systems in KwaZulu-Natal and the Western Cape. This was an important part of piloting the diagnostic related groups as part of the NHI.

R212 million would be added to a new indirect component of the comprehensive agriculture support programme (CASP) to enable the National Department of Agriculture, Forestry and Fisheries (DAFF) to provide relief to farmers affected by the ongoing drought. R177.1 million had been allocated to the education infrastructure grant for the rehabilitation of damaged school infrastructure. Additions to the national school nutrition programme grant amounted to R53.6 million in order to cover the shortfall caused by high food price inflation.

Changes to the local government allocations had an impact on only three indirect grants. R27.9 million would be rolled over for the Municipal Demarcation Transition grant for

funds converted to an indirect grant allocation at the end of the 2015/16 national financial year. A total of R50.6 million would be added to the indirect water services infrastructure grant to fund the provision of emergency water supplies to drought-affected communities. R72 million would be added to the bucket eradication programme (BEP) grant to allow the Department of Water and Sanitation (DWS) to complete the bucket eradication projects that it had already identified and was committed to implement.

The National Treasury also briefed the Committee about adjustments to the provincial government conditional grants framework. The NHI grant framework had been amended to provide conditions for the Diagnosis Related Group’s (DRG) project additions to this grant. Within the NHI indirect grant, R10 million had been reprioritised from the Human Papillomavirus (HPV) vaccination grant component towards the health professionals contracting component, as the HPV vaccination grant component was currently under-spending while the latter component faced expenditure pressures. Changes to reflect this shift had been captured in the allocation annexure of the NHI indirect grant.

Pertaining to issues raised on the Division of Revenue for the 2017 medium term expenditure framework (MTEF) during the Medium Term Budget Policy Statement (MTBPS) hearings, the DoR between the three spheres was broadly stable over the MTEF period. Strong growth in local and provincial allocations in the outer years reflected the priority placed on frontline services, as well as the rising cost of these services. The National Treasury, working with provincial treasuries, national departments, StatsSA and the Financial and Fiscal Commission (FFC) had begun an in-depth review of the provincial equitable share formula. Given budgetary constraints, all municipalities needed to focus on more efficient spending and value for money to improve basic service delivery.

Concerning intergovernmental debt and the financial health of the municipalities, the South African Local Government Association (SALGA) had raised a longstanding concern about monies owed to municipalities by government departments, but had also noted that the Department of Public Works had committed to resolving this issue. Both national and provincial departments were making significant progress in this regard, and amounts owing to municipalities were now declining and not increasing. It was concerning that debts owed by municipalities to Water Boards and Eskom were increasing. SALGA had also noted that the Auditor-General had said that the financial health of 92% of municipalities was concerning, or required intervention.

The National Treasury also informed the Committee about “Municipal Money” and financial management reforms. SALGA had welcomed the Minister of Finance’s announcement of the launch of the “Municipal Money” website. SALGA had raised concerns about the readiness of municipalities for the introduction of the municipal Standard Chart of Accounts (mSCOA) in July 2017. Government budgets were a blueprint for how public resources were going to be spent and budget information should be transparent and accessible for people to understand how public funds would be used.

Members wanted to know if there were any time frames in place for under-spending, because the Minister of Finance had indicated that if the money was taken out and under-spent, it should be given to those who knew how to spend it; they asked what progress had been made regarding funding for the early childhood development (ECD) facilities; enquired how ready National Treasury was to disburse the drought allocation of R212m to provinces; wanted to know what the rationale was for taking away the bucket eradication programme money from two municipalities in the Free State; asked when the “Municipal Money” website started working; remarked that the added R3.4 million for a distressed municipality in the North West was not enough to address challenges in that community, though it was welcomed; and asked if there was support from National Treasury to assist municipalities that did not have the capacity to implement programmes or grants.

Meeting report

Briefing by National Treasury on Revenue Amendment Bill

Ms Malijeng Ngqaleni, Deputy Director-General, National Treasury, informed the Committee that the presentation sets out all of the changes to provincial and municipal allocations in the 2016 Division of Revenue Amendment Bill (DoRAB).

Briefing the Members on the provincial allocations, she reported that R275.7 million would be rolled over from allocations made in 2015/16 on the provincial roads maintenance grant for KwaZulu-Natal. These funds were not transferred in 2015/16 because the province did not meet the reporting requirements for the grant. The province did, however, spend its own funds on road maintenance and had subsequently met the reporting requirements. A further R9 million would be added to the direct National Health Insurance (NHI) grant to fund the strengthening of health information systems in KwaZulu-Natal and the Western Cape. This was an important part of piloting the diagnostic related groups as part of the NHI.

R212 million would be added to a new indirect component of the comprehensive agriculture support programme (CASP) to enable the National Department of Agriculture, Forestry and Fisheries (DAFF) to provide relief to farmers affected by the ongoing drought. R177.1 million had been allocated to the education infrastructure grant for the rehabilitation of damaged school infrastructure. Additions to the National School Nutrition Programme grant amounted to R53.6 million in order to cover the shortfall in the grant caused by high food price inflation. R142.5 million of the indirect school infrastructure backlogs grant would be converted to the direct education infrastructure grant allocation for the Western Cape. The province would implement the same projects planned under the indirect grant.

Mr Steven Kenyon, Director: Local Government Process: National Treasury, told Members changes to the local government allocations had had an impact on only three indirect grants. R27.9 million would be rolled over for the Municipal Demarcation Transition grant for funds converted to an indirect grant allocation at the end of the 2015/16 national financial year. A total of R50.6 million would be added to the indirect water services infrastructure grant to fund the provision of emergency water supplies to drought-affected communities. R72 million would be added to the bucket eradication programme (BEP) grant to allow the Department of Water and Sanitation to complete the bucket eradication projects that it had already identified and committed to implement.

He further briefed the Committee about adjustments to the provincial government conditional grants framework. The CASP framework was amended by the deletion of the phrase: “The comprehensive agriculture support programme would be top-sliced by R60 million over the 2016 MTEF (R10 million 2016/17, R20 million 2017/18 and R30 million 2018/19) in order for the Department of Agriculture, Forestry and Fisheries to provide an oversight and monitoring function for the grant.” Furthermore, the grant framework would be adjusted to include rules for the indirect component for the R212 million drought relief allocation. The DAFF would be required to prepare a business plan on how the funds would be spent and to consult the National Disaster Management Centre and each provincial department responsible for agriculture, before these funds could be spent.

The NHI grant framework was amended to provide conditions for the Diagnosis Related Groups’ (DRG) project additions to this grant. Within the NHI indirect grant, R10 million had been reprioritised from the Human Papillomavirus (HPV) vaccination grant component towards the health professionals’ contracting component, as the HPV vaccination grant component was currently under-spending, while the latter component faces expenditure pressures. Changes to reflect this shift were captured in the allocation annexure of the NHI indirect grant.

The Municipal Infrastructure Grant (MIG) framework was corrected by adding a clause allowing Sport and Recreation South Africa to grant exemptions to the requirement that ring-fenced sport project funds may be implemented only through nationally approved transversal contracts.

With regard to responses to issues raised on the DoRAB, it was reported that on roll-overs the National Treasury welcomed the Financial and Fiscal Commission’s (FFC’s) observation that the total amount of roll-overs was substantially lower in 2016/17 than last year. The FFC, however, had raised some concerns about the roll-over of R275.7m on the Provincial Roads Maintenance Grant. These funds had not been transferred in 2015/16, as the province had not complied with the reporting requirements of the grant. However, the funds were spent on road maintenance and the province had subsequently met all of the reporting requirements, hence a roll-over was approved to reimburse the province for funds spent.

Pertaining to issues raised on the Division of Revenue for the 2017 medium term expenditure framework (MTEF) during the Medium Term Budget Policy Statement (MTBPS) hearings, the DoR between the three spheres was broadly stable over the MTEF. Strong growth in local and provincial allocations in the outer years reflected the priority placed on frontline services, as well as the rising cost of these services. The National Treasury, working with provincial treasuries, national departments, StatsSA and the FFC had begun an in-depth review of the provincial equitable share formula. Given budgetary constraints, all municipalities needed to focus on more efficient spending and value for money to improve basic service delivery.

On determining reduction to grants, the FFC had proposed that reductions should be based on an analysis of the historic performance of each grant. Past performance was taken into account when determining reductions, but should not be the only factor considered. Under-performing grants should be expected to improve their performance in future, and should not automatically be cut. Other factors such as commitments funded from the grant, the size of the grant and future growth in the grant baseline must also be taken into account. In the 2017 MTEF, grant reductions had been structured to minimise the impact on service delivery by trying to ensure that current expenditure levels could be maintained as far as possible.

The National School Nutrition Programme (NSNP) had shifted to using national quintiles, but the Department of Basic Education (DBE) may give exemptions to allow a province to still fund meals in schools that were previously eligible in terms of provincial quintiles. Scholars from poor families could apply for a fee exemption at any school (irrespective of its quintile). The DBE was also reviewing the school-funding model.

National Treasury had noted that both the South African Local Government Association (SALGA) and the FFC had supported the proposal for the Integrated National Electrification Programme (INEP) municipal allocations for metros into the Urban Settlements Development Grant (USDG), with the FFC indicating that this would “curb the current uneven and disintegrated manner in which electrification projects were funded in cities”. SALGA had also raised concerns that the schedule 4 (supplementary) USDG was being managed as though it was a schedule 5 (specific purpose) grant. The National Treasury viewed it as very important that this grant was supplementary in order to both leverage more municipal own revenues, and to allow for the development of more integrated cities.

Concerning intergovernmental debt and the financial health of the municipalities, SALGA raised a longstanding concern about monies owed to municipalities by government departments, but also commented that the Department of Public Works had committed to resolving this issue. Departments (national and provincial) were making significant progress in this regard, and amounts owing to municipalities were now declining and not increasing. It was concerning that debts owed by municipalities to Water Boards and Eskom were increasing. SALGA also noted that the Auditor-General had said that the financial health of 92% of municipalities was concerning or required intervention. National Treasury shared this concern, and supported municipalities with resources and capacity support:

- Transfers to local government had grown from 3% of the DoR in 2000 to 9%

now, and had grown faster than allocations to the other spheres over the 2017 MTEF.

- Over R2.4 billion had been allocated for municipal capacity support in 2016/17 through

capacity grants, the Municipal Finance Improvement Programme and the Municipal

Infrastructure Support Agent, in addition to support from donors and Sector Education and Training Authorities (SETAs).

Ms Elsabe Rossouw, Director: Data Management, National Treasury, informed the Committee about municipal money and financial management reforms. She said SALGA had welcomed the Minister of Finance’s announcement of the launch of the “Municipal Money” website. SALGA had also raised concerns about the readiness of municipalities for the introduction of municipal Standard Chart of Accounts (mSCOA) in July 2017. Government budgets were a blueprint for how public resources were going to be spent, and budget information should be transparent and accessible for people to understand how public funds would be used.

Data was up to date and was based on the submissions of municipalities to the Local Government Database and Reporting System (Local Government Database and Reporting System). It was based on the quarterly Section 71 publications and the latest audit outcomes. Municipal Money would be updated every quarter with the latest available finance data. Information was available 24/7 on the internet and mobile devices. It was educational and explained finances in “citizen-speak”. It had links to the guidance on how to interpret the data. It encouraged and guided citizens on how they could get involved in the budget and planning cycle of a municipality. It accommodated feedback mail for queries or general comments and collected statistics on the use of the open portal.

The National Treasury was committed to working with stakeholders to continuously improve the website. 6 125 people had already used the website. Enhancements have already been requested for:

  • Better comparative measures on tariffs and household bills;
  • Tracking of capital projects of municipalities;
  • Ward-based data.

The project steering committee would meet at the end of this month to discuss new focus areas, based on feedback from citizens.

Long-term objectives of the local government budget reform agenda were:

  • Quality local government information informing national policy debates;
  • Information comparable across all municipalities to aid resource allocation decisions;
  • Ensuring a credible budgeting process was a key ingredient to improving financial management;
  • Prevention of municipal financial difficulties before they occurred through the application of budget and Section 71 analysis -- an early warning system;
  • Strengthening the link between policy formulation, planning, budgeting, implementation, reporting and monitoring, i.e. accountability and service delivery.

Ms Rossouw said that support to municipalities was planned to go live on mSCOA by 1 July 2017. The mSCOA support and change management team had been working with all the municipalities through advisors in each province since 2013. Extensive training had been done throughout the country to de-mystify mSCOA and to give municipalities a roadmap to the implementation of the new classification framework. Readiness assessments had been done for each municipality through the provincial treasuries, and special attention had been given to municipalities that were lagging behind. Throughout this process, contact had been maintained with all system vendors, and their software development progress had been monitored and evaluated to see if they conformed to the principles of mSCOA. Accredited training material had been developed, and the second batch of trainers would be trained and accredited in December 2016. Through circulars and practical workshops, certain milestones had been set to ensure that all municipalities were on board before 1 July 2017.

Discussion

An MPL (Free State, ANC) wanted to know if there were any time frames in place for under-spending, because the Minister of Finance had indicated that if the money was taken out and under-spent, it should be given to those who knew how to spend it. He was referring to the Kwa-Zulu-Natal (KZN) rollovers.

Ms Ngqaleni said the rules for rollovers were there. They allowed for a department to prove it could not spend the money allocated. The problem was not under-spending, but poor reporting that caused a department not to get the money. National Treasury was very strict on rollovers, because it wanted to prevent their recurrence. If departments and municipalities failed to spend, National Treasury made provision for re-allocations. Every year, the National Treasury held sessions with departments to look at their budgets to see if they were aligned with their developmental roles and priorities. There were mechanisms in place to be followed.

Mr C de Beer (ANC, Northern Cape) asked what progress had been made regarding funding for the early childhood development (ECD) facilities.

Ms Ngqaleni said that most ECD facilities were privately owned. The National Treasury had met with the Departments of Social Development and Cooperative Governance and Traditional Affairs (COGTA). The challenge was around the lack of norms and standards for funding these facilities. National Treasury had no problem with funding these ECD facilities, and looked only at multi-use facilities, especially with municipalities, because then one got more value for money.

Mr Cornelis van Rooyen (MPL, Free State) asked how ready National Treasury was to disburse the drought allocation of R212m to the provinces. He further wanted to know what the rationale had been for taking away the bucket eradication programme funds from two municipalities in the Free State.

Ms Ngqaleni, regarding the drought allocation, said that the DAFF had stated it was at an advances stage in terms of channelling the money to where it was supposed to go. Soon DAFF was going to submit to National Treasury its plans and reports. Provinces needed to advise the DAFF of where the needs were so that assistance could be given to them. Assistance was not going to be in a form of money, but in the form of fodder and other necessary items. Concerning the bucket eradication project, she said some lists of projects had been reprioritised, especially since some funding had been received from the Department of Water and Sanitation. The delays were due to engineering challenges, such as drilling, because Free State had many rocks under the earth’s surface. The bucket eradication programme was targeted at the bucket sanitation in informal settlements. For formal areas, it would be settled by the end of the year. Outstanding projects would be accommodated in the Regional Infrastructure Grant.

Mr A McLaughlin (DA) asked when the “Municipal Money” website had started working.

Ms Ngqaleni replied that it had gone live on 26 October 2016.

An MPL (North West) asked for clarity on the 92% of municipalities that were reportedly in distress. He remarked that there were challenges around the accessibility of data from the “Municipal Money” website, and asked if Treasury was going to consider multi-use facilities for rural communities.

Ms Ngqaleni said the list of distressed municipalities would be made available to the Committee. Money was not always the problem, but there was a need for an integrated approach to understand the root cause of the problems. About data accessibility, she said mobile accessibility was the only one way of making the data available to other areas.

Mr T Motlashuping (ANC, North West)) said that the additional R3.4 million for a distressed municipality in the North West was not enough to address challenges in that community, though it was welcomed. He asked if there was something else that could be done.

Ms Ngqaleni stated that the R3. 4 million allocation was there to address an immediate problem, and as Treasury they needed to know where that project was prioritised in the list.

An MPL (Gauteng) commented that the National Treasury needed to assist some provinces and municipalities in terms of debt collection, because they were not collecting what was due to them. This was the money that needed to be collected from other government departments and entities. SALGA had raised concerns about the USDG grant, and National Treasury had been saying it would continue to engage with the affected stakeholders. He wanted to know if there were guiding criteria for officers to transfer the grant. He asked if there was support from National Treasury to assist municipalities that did not have the capacity to implement programmes or grants.

Ms Ngqaleni said the nature of the USDG grant should be understood. The law was clear about the grant, and how to monitor and report on it. A department needed to demonstrate there was a need for the money and where money would be allocated. With regard to support to municipalities, she said that municipalities that had potential needed to optimise and maximise their resources. Rural municipalities needed more funding and capacity, and that could be achieved if the metros tried to partner with the private sector.

The Chairperson wanted to establish what specific interventions could be made to improve budget execution if municipalities wanted to achieve value for money to improve basic service delivery.

Ms Ngqaleni said that benchmarking and monitoring were tools that were used. She said it had to be remembered that municipalities budgeted differently.

Motion of Desirability

The Chairperson read Members of the Standing Committee on Appropriations the Motion of Desirability.

All the Members agreed to it.

The meeting was adjourned.

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