Intergovernmental Fiscal Review: briefing

NCOP Finance

08 April 2003
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Meeting report

PORTFOLIO COMMITTEE ON FINANCE

FINANCE SELECT COMMITTEE
9 April 2003
INTERGOVERNMENTAL FISCAL REVIEW: BRIEFING

Chairperson: Ms QD Mahlangu (ANC)

Documents handed out:
Intergovernmental Fiscal Review

National Treasury presentations:
Briefing on Intergovernmental Fiscal Review
Provincial Budget Trends
Local Government Trends
Local Government Personnel Issues
Water and Sanitation
Electricity Sector
Education
Social Development
Health Services Financing and Delivery
Agriculture and Land
Roads and Transport
Housing

SUMMARY
The Treasury briefed members of the committee, invited committee chairpersons, municipal officials and members of provincial legislatures on the Intergovernmental Fiscal Review. The review covers all the services being financed in provinces and municipalities. The presentations were followed by a broad discussion.

MINUTES
Overview of Intergovernmental Fiscal Review

Mr Momoniat (Deputy Director-General, Treasury) presented [see document].

Discussion
Mr Hanekom (ANC) praised the Treasury for an excellent presentation and overview. He remarked that this information is very useful and that the challenge is to properly interpret and analyse it and then take the right kind of action. They must be careful as the needs of municipalities and sectors will differ. The presentation stated that in some instances personnel costs are squeezing out delivery. It could be that more analysis is needed on this. Mr Hanekom explained that municipalities have a need for a great number of personnel, from cleaners to traffic officials. Expenditure on personnel does not necessarily equate to non-delivery. He would like to see more in-depth analysis of infrastructure and capital needs in a local authority versus the actual personnel needs. In some ways one would like to see them spend less on capital and more on personnel. What is true is that there are many redundant people in the local authorities who are not doing anything but get paid. Some of the problems could be addressed by better communication between government at national and provincial levels. He emphasised the importance of policy coherence.

Mr Chauke (Member of Mayoral Committee, Finance and Audit, City of Tshwane) stated that municipalities are operating in a regulated environment. He explained that some municipal areas are not receiving free basic services due to their having independent suppliers such as Eskom. Discussions have been held but the independent suppliers are not providing the free services. He asked Treasury what it is doing to assist municipalities on this issue. Mr Chauke also emphasised finding a balance between capital spending and personnel needs.

Mr Lyle (ANC) shared Mr Hanekom's view on the presentation. He wondered why government spends so little money on roads when they know that transport is the lifeblood of an economy. He mentioned rural areas with potential for tourism that have no roads to get there.

Mr Makola (Municipal Manager, Nkangala District Municipality) stated that he does not see the Review addressing some of the decisions taken at national level especially regarding water, sanitation, electricity and health. He also lamented that Eskom is not providing free electricity in the areas where they are the supplier.

Ms Ntshadi Bheole (ANC) commented on the issue of the capacity of municipal personnel and the supplementing of this capacity through consultants and what effect this has on local government budgets. She asked whether this has been reviewed and what could be done.

Ms Botha (DA) commented on the terrible state of rural roads. It is not just an issue of more money but looking at how roads are fixed. There are other methods that need to be looked at like for instance involving farmers contracting out.

Ms Fubbs (Chairperson Finance Committee, Gauteng Legislature) welcomed the Review. She highlighted a few points that can be looked at in the future. One of them is local government. In Gauteng's experience one of the factors that needs looking at is the service delivery expenditure of local governments where the revenue is low. The expenditure very often needs to be higher than the revenue. On housing delivery, a significant problem is the role of the municipalities in aligning their strategic plans with the province (and the other way around). This leads to a lack of alignment to the provincial plan to deliver housing. She also wondered whether there should not be a surcharge on the use of water for recreational purposes. She proposed adding to a review of this nature: the unpacking of the sustainability of the measures and provision of services in the short term as opposed to the medium and long term. This could show if too much is being done in a particular timeframe that may in fact cost more to sustain over the medium term without reducing expenditure or impeding the quality of service.

Mr Momoniat responded that he is not going to address the detailed issues as they will come up in the later presentations and can be discussed in detail with those departments and agencies. This Review should be backed up by non-financial information. This would enhance accountability and performance in the system. The analysis is pretty basic due to the time factor and it must not be seen as the last word. It is up to Parliament and the other committees to take this further. By its nature, it is a first analysis drawing attention to apparent disparities or issues. He mentioned that two of the provincial education departments had received unqualified opinions from the Auditor General. This needs to be looked at closely, not by SCOPA (Standing Committee on Public Accounts) but by the other committees.

Provincial Budget Trends:
Mr Kenneth Brown (Director: Intergovernmental relations) presented [see document].

Discussion
Mr Ralane (ANC) asked whether some analysis has been made of the kinds of skills one need in the different sectors. He also wondered whether enough attention is given to the retention of skills instead of the migration of skills.

Ms Mahlangu referred to the social spending mentioned in the presentation. She wondered about the rate of utilisation of LSM (learner support material). She questioned whether learners are encouraged to bring used text books (and other LSM) back to schools and whether they are not throwing money into a bottomless pit.

Mr Momoniat replied that those questions would be covered in upcoming presentations.

Mr Brown explained that the quality of a lot of the schoolbooks is so poor they do not last more than three years. They have discussed this issue in bilateral talks with the provinces.

Ms Fubbs commented on the issue of own revenue. She stated that potential problems have been found on the gambling side of revenue, casinos etc. The problem is not the decreasing own revenue but rather the underestimation of it. If the revenue is underestimated and the bonuses are calculated on the basis of increasing the revenue above the target put forward, the bonuses increase and chew up the revenue. Therefore the problem is not that own revenue is decreasing at its source but rather perhaps the underestimation of it.

Mr Brown replied that a study conducted by them revealed problems around forecasting of own revenue. People are just slotting in numbers in some cases for what they are going to collect in the next year. They have seen instances where gambling boards are the agents for the provinces and they do not pay over the money. There are agreements with gambling boards that are not being implemented.

Ms Mahlangu noted that the issues around own revenue is not a new one.

Local Government Trends; Local Government Personnel Issues; Water and Sanitation; Electricity Sector
Mr TV Pillay (Treasury) presented [see document].

Discussion
Mr Chauke commented that municipalities need assistance in terms of balancing their lending capacity with their investment capacity. It is very rare that financial institutions will lend local government money if they do not have investment portfolios.

Mr Makola spoke on the question of unrealistic budgeting. He explained that when municipalities implement budgets there are other factors that come into play. For example, environmental assessments need to be undertaken. Those matters also need to be reflected because while some municipalities do not have the capacity to spend, others are not able to spend because of factors outside their control.

Mr Mshudulu (ANC) asked the Treasury how far they are assisting municipalities who cannot contribute to skills development. It is clear that poor municipalities do not have the finances to develop skills. The capacity of local government is lacking.

Mr Mahlangu explained that all issues brought to light are noted and will be taken further when the different departments and municipalities appear before the various committees. Therefore the chairpersons of other National Assembly and NCOP committees have been invited to this broad discussion.

Mr Memoniat commented on the issue of capacity. Amounts are allocated to national and local departments in the budget. They should answer in the first instance for this money. Sometimes the lack of capacity becomes an excuse for non-delivery. When some municipal managers are paid more than Director-Generals and they claim not to have the capacity you cannot be very sympathetic to their claims. He clarified that that does not mean capacity issues do not exist. On realistic budgeting he remarked that this is the job of the municipality to take account for. When municipalities accepts unrealistic budgets they are not worth the paper they are written on and they won't be able to deliver.

Mr Pillay stated that the Treasury would like to work closely with municipalities to help them create plans that could affect long term borrowing through municipal bonds and the like. They are striving to get a credit rating for the metros.

Education:
Ms Ronetta Engela (Director: Provincial Policy Fiscal Framework, Intergovernmental Relations) presented [see document].

Social Development:
Mr Daniel Plaatjies (Director: Social Development) presented [see document].

Health Services Financing and Delivery:
Dr Mark Blecher (Director: Social Services, Health and Public Finance) presented [see document].

Discussion
Ms Jacobus commented that the per capita spending on health in the better resourced provinces seems to be higher than the others, particularly on primary health care.

Mr Raju commented that there are also schools in the previous House of Delegates areas that have good infrastructure that are not being used. What happens in such an instance? Could the local municipality take over the unused schools for community halls and such and thereby earn revenue from them?

Ms Fubbs asked if there was any way to learn what the degree of correlation is between beneficiary numbers trends and issues such as unemployment and other social, safety and correctional issues. Has any study been done in this regard?

Mr Lyle commented that Treasury had stated that municipalities raise around 66% of their revenue. His concern was the lack of a clear demarcation line between rural and urban municipalities. The rural municipalities have almost no way of raising revenue. He gets the impression that when Treasury does their financial planning they do not take this factor into consideration.

Mr Momoniat made it clear that 66% is an average. Not all local governments raise that much. They accept that rural municipalities cannot raise as high an amount as others and take that into account. He agreed that their formula should take the poor municipalities into account. The current formula had been instituted in 1997 and there are a number of problems with it that they are looking at.

The Deputy Finance Minister, Mr Mphalwa, commented on the envisaged agency that is going to take responsibility for the payment of social grants. There are other matters that have to be taken into account such as the corruption of the database and issues surrounding existing capacity. He noted that in this document they speak of a range (60% - 95%) of how much revenue municipalities should generate. This is already a step forward from documents in previous years that only had a single figure to aim at. The re-demarcation of municipalities in 2000 has reduced the number of poor municipalities who do not have capacity. One has to note some of the changes that have been taking place.

Agriculture and Land:
Ms Ngqaleni (Director: Provincial Budget Analysis, Intergovernmental Relations) presented [see document].

Roads and Transport:
Ms Ngqaleni presented [see document].

Housing:
Mr Kenneth Brown (Director: Budget Analysis) presented [see document].

Mr Snyman (ANC) commented that the SARCC had told the Transport Portfolio Committee during hearings that around R16 billion was needed to provide for railway infrastructure. Is the current funding for rail infrastructure sufficient and is an increase in funding planned over the next few years.

Ms Mahlangu commented that there have been many complaints about the poor quality of the housing that the government has provided. She asked if Treasury is satisfied that sufficient mechanisms have been introduced by the Housing Department to ensure that the quality of houses being built is good.

Mr Momoniat remarked that there are very tough issues on the table and they do not have the answers for them. He said that the quality of housing and such would be better to discuss with the appropriate departments themselves.

Ms Mahlangu concluded that the meeting, although long, had been very useful. The broader issues have been pointed out and the committees must now follow this up when the departments appear before them. There were no further comments and the meeting was adjourned.

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