Division of Revenue Bill: FFC submission

NCOP Appropriations

12 September 2017
Chairperson: Mr C De Beer (ANC, Northern Cape)(Acting)
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Meeting Summary

The FFC told the Committee that it had focused on urban areas for the current year, after focusing on the rural areas in the previous year. It was unclear if the SA economic growth pattern was pro-poor. The SA workforce was predominantly urban-based. Inequality was high in the metros. Improved infrastructure could lower the cost of service delivery.

The FFC had recommended that the Department of Cooperative Governance and Traditional Affairs (CoGTA) and the National Treasury (NT) should consolidate urban development-related grants. The development of a more compact city form was recommended, based chiefly on the revitalisation of city centres and restraining urban sprawl. There was a funding gap in respect of implementing and managing public transport networks. Scholar migration patterns followed urban development patterns. There were unhoused populations across all income groups in urban areas. There were high unemployment levels in urban areas. More resources had to go to infrastructure, to attract new investment, to build dynamic economies and to increase employment.

Discussion took an unusual turn when the FFC challenged a DA Member on his assertion that FFC research was desktop-based. The leader of the FFC delegation took that further by stating that the Finance Minister wanted the FFC to emerge from under the radar to play a more challenging role, and that Parliament had not paid sufficient attention to what the FFC had been saying for 20 years. Members had other comments and questions about city planning; the consolidation of grants; the integrated public transport system and transport grants; access to housing; anomalies in the equitable share for KZN learners; own revenue of metros; public funding; unemployment; monitoring and accountability; the ‘Back to Basics’ programme; fiscal policy; development planning and coordination; and connecting with the private sector.

Meeting report

Introduction by Chairperson
 
The Chairperson said the Financial and Fiscal Commission (FFC) would be presenting on the 2018/19 Division of Revenue. The Committee’s oversight visit to Gauteng the previous week had consisted of an active programme and was informative. It was part of the buildup to the presentation, as were the previous engagements on metro municipalities and the spending of grants. It all fitted together. The matter of the OR Tambo district municipality would also be dealt with, including correspondence between himself and the Minister of Finance. The Select Committee had given the Finance Minister and the Eastern Cape Provincial Treasury the space to engage with each other. There were follow-up letters of reply which would be circulated by the staff.

The Committee would deal with an address by the South African Reserve Bank (SARB) to the public on monetary policy on 10 October. The FFC presentation would focus on urban development. Urban areas were the engines of economic development, and had a role to play in national development. This was addressed in the National Development Plan (NDP), the action plan of the National Council of Provinces (NCOP) and the Committee. Engagement with other stakeholders had to be enhanced, including the private sector, which was a key role player. Mr Steven Kenyon of the NT was present, as was the Parliamentary Budget Office.

He appealed to Members to work through a document compiled by the Committee Researcher, before the pending engagement at Kokstad.

2018/19 Division of Revenue: FFC Briefing
 

The FFC briefing was presented by Prof Daniel Plaatjies, Chairperson; Mr Sipho Lubisi, Commissioner; Dr Ramos Mabugu, Commissioner; Ms Sasha Peters, Researcher; and Ms Poppie Ntaka, Researcher.

The briefing focused on urban areas, after the FFC had focused on rural areas in the previous year. It was unclear whether the pattern of economic growth in SA had been pro-poor. SA was an upper-middle income country, but its poverty level was much higher than expected, given its gross domestic product (GDP) per capita. The workforce was predominantly urban-based. Inequality was stubbornly high across the country, particularly in the metros. Improved provision of infrastructure in the metros would result in a lower cost of service delivery in the medium term, and higher public spending in the short run.

It was recommended that the Department of Cooperative Governance and Traditional Affairs (CoGTA) and the National Treasury (NT) consolidate urban development-related grants. In 2011, the FFC had recommended that SA should pursue the development of a compact city form, based among other factors on the revitalisation of town centres and the restraint of urban sprawl. A funding gap existed for metros to implement and manage public transport networks. Unhoused populations existed across all income groups in metros. Scholar migration patterns were following urban development patterns. Urban municipalities faced unemployement levels that were almost as high as the national average. Rapid urbanisation was not being accompanied by a decline in unemployment. Metros required more resources to invest in infrastructure in order to attract new investment, to build dynamic economies and to increase employment.
  
Discussion

The Chairperson commented that the tax Indaba in Gauteng the day before had indicated that revenue was under pressure. There was less money to divide between the three spheres of government, in terms of the Division of Revenue Bill (DORB), which would be tabled in February 2018. The message was that money had to be spent wisely. Programmes and funding had to be combined wisely for better results in every sphere of government. There would be an official response by the Minister and the National Treasury, which would be captured in the Budget review.

On an oversight visit the previous week, the Select Committee had gone to ground level to observe human settlements development at Diepsloot in Johannesburg. A huge pipe ran through the area, which was said to be bulk water supply, but it was in fact bulk sewage. It was disturbing to see bulk sewage being conducted through an area where houses and flats were going up. It was bad planning, which impacted negatively on the dignity of people.

Mr L Nzimande (ANC, KZN) commented that he was glad that the FFC had made a plea for recognition of what it was doing, and what it had done before. The question was what role the yearly submissions played. More resources were being advocated for people who were supposed to be self-sufficient. Urban municipalities were responsible for 57% of economic growth. There was a relation between asking for more money, and the fact that research took cognisance of the narrowness of the revenue base.

Chapter 2 of the DORB recommended the consolidation of grants. He asked if that was what cities wanted. The Durban, Ekurhuleni, Tswane and Cape Town metros had to be asked about that. Chapter 4 referred to transport grants. Considering the funding gap that existed, it was doubtful if the FFC was being realistic about the matter. Concerning access to housing, there seemed to be a diminution of access. A standard was needed that took the presence of children and the disabled into account. Regarding Chapter 6, he chose to wear a provincial hat. The Eastern Cape and Limpopo had been highlighted in terms of learner mobility, yet a visit to KZN had highlighted anomalies in the equitable share. KZN had the most learners, at 2.8 million, while Gauteng had two million. The money allocated did not reflect that. He referred to identity allocation. There were reports that 13 000 to 15 000 children were not in schools. Work had to be done on the applicability and relevance of the standardised subsidies. The Early Childhood Development (ECD) grant was not relevant for disabled children. He referred to Chapter 7, and said the allocation of funds was directed to urban centres, which were supposed to be sustainable on their own. It raised questions about own revenue.

Mr O Terblanche (DA, Western Cape) congratulated the FFC on a comprehensive presentation. He was not an economist, but he was a businessman. There was nothing in the report that could stimulate anyone to start a new business. He was concerned about the fact that more public funding was advocated, while the question remained where that had to come from. He asked if it would have to come from additional loans, while the country was facing a fiscal cliff. There had to be new policies. Government had to go back to the drawing board to see how to manage the country out of its current mess. The presentation was a good academic desktop exercise, but the question was how to establish an integrated public transport system. The three big metros had hardly scratched the surface. There was not a single integrated public transport system in the country. People battled to get to work. The economy had to be made to grow to generate revenue. He did not see anything in the briefing that excited him. What had been presented would make no difference in places like Koekenaap or Garies. Something more to the point was needed. Nothing could be implemented without whetting the appetite of the private sector.

Mr F Essack (DA, Mpumalanga) remarked that the FFC always insisted on stability, and alluded to discussions with the NT. Strong statements had been made to the effect that the economy could not grow enough to reduce poverty, inequality and unemployment. That assertion had been heard time and time before, but politicians had to be clear about what needed to be done. It was not clear what was meant by the statement that the SA growth pattern was not pro-poor. There was an ongoing rise in unemployment. The FFC had recommended that CoGTA consolidate the Urban Settlements Development Grant (USDG). He asked how long that would take, and if the will was there. Had the FFC discussions with the NT seriously looked into planning for stronger mechanisms for the monitoring of local special plans, priorities and networks? He referred to the credit rating for municipalities. Why, after 23 years, was there not a will expressed through the NT or CoGTA regarding a programme or a set of rules? It could have a huge impact on the economy.

Dr H Mateme (ANC, Limpopo) remarked that the messenger -- the FFC -- was being shot. The question was whether Members were not barking up the wrong tree. Research findings presented about poverty were not thumb-sucked. The reality of the situation had to be faced. She was critical of the fact that the research was based on information available in offices. SA had to be helped to use resources better. Land was finite, and so was the fiscus. The dilemma that faced the presenters was that there were more warm bodies needing services than were documented. In Musina, in Limpopo, South Africans were outnumbered by non-South Africans. Any province that shared a border with a neighbouring country would understand what she was referring to.

Still, it was not all doom and gloom. Historically the Eastern Cape, Limpopo and KZN were the areas of greatest need. Yet KZN was graduating. The message from the FFC was that the cake was only that big, and had to be shared correctly. There were viable systems and quality personnel. It all depended on how well issues were managed. Implementing departments had to come up with timeframes for possible solutions. The FFC enabled the government not to shoot in the dark. There were proposed solutions. Government was slowly getting somewhere. There was an inflow of non-South Africans who made use of services like clinics and schools. There were pension grant challenges. The messenger (the FFC) was saying that there were challenges, but there were solutions to those challenges.

The Chairperson said the FFC was there to make recommendations. It was the responsibility of Parliament to engage with the relevant sector departments, and national and provincial departments. It had to interrogate if municipal Annual Performance Plans (APPs) and budget policy were being implemented. It had to be known why the nine provinces had returned R4.4 billion to the NT. Question time was coming up in October for the economic cluster. The FFC document set the table for Members to go and ask the questions.

There would be an engagement on 26 October about the Medium Term Budget Policy Statement (MTBPS), which would include a briefing by the Finance Minister and his team. The NT and CoGTA would have to be called on ro report on the ‘Back to Basics’ programme for municipalities. The question was how it had enhanced performance, as well as the Municipal Infrastructure Support Agency (MISA) programme. The Committee Researcher and Content Adviser had to read questions about that, together with the findings of the Organisation for Economic Coordination and Development (OECD), and the findings of the International Monetary Fund (IMF) and the World Bank, of May 2017. It was not a stand-alone exercise. It had to be known what those institutions had to say about performance. He agreed with Dr Mateme that it was not all doom and gloom. There were green shoots in the economy. The Committee had to take the FFC message further.

Mr L Gaehler (UDM, Eastern Cape) remarked that it was futile to ask questions to Ministers, as they never answered.

The Chairperson told him to keep on asking. He asked the FFC to respond to remarks and questions.

FFC’s response

Prof Plaatjies responded that it was necessary to be blunt and brutally honest. When people tangled in the dark, they trod on each other’s feet. He told Dr Mateme that the FFC was about to visit Limpopo. He replied to Mr Terblanche that the two of them had to converse about the discourse of language. The FFC was not a line department -- it was a constitutional structure. The FFC had been under the radar under successive ministries, but the current Minister did not want that to continue. It was currently expected of the FFC to challenge the status quo, and economic policy frameworks.

The FFC did not conduct desktop research. There was praxis, and a relation between policy praxis and research into where government wanted to go. A scientific model was matched to policies, and practice followed over the years. The FFC provided information that Parliament could take up. If Parliament agreed, it could question Ministers and officials who came to the Committee, on behalf of South African citizens. The Committee could look at what the FFC had been submitting for 20 years. Parliament for many years did not take up the questions and recommendations made by the FFC. The same applied to legislators. A Member had complained that the FFC made recommendations every year. He asked if Members had ever noticed that their MEC’s of Finance sat in the Budget Council, which was a council of the Minister of Finance and other Ministers. Executive Mayors sat in the Budget Forum with MECs of Finance, which discussed the fiscal and economic framework every year. He asked if Members had ever considered that the Premiers sat in the Presidential Council, where the same matters were discussed. Parliamentary Portfolio Committees were part of that same process. Committees of Parliament were themselves to blame for not taking up FFC recommendations that were made year after year. Mr Steven Kenyon of the NT (present at the meeting), had often spoken of leadership from political elites, in the discourse of political discussions. MPs were the political elite, who were at the forefront of political contestation in South Africa.

The FFC gave information to Parliament. If there was agreement, it became possible to ask the right questions that addressed inequality. It was not only about corruption and fraud. or about systems. The FFC spent a full year observing. It was in a position to say that if Parliament did not take up issues, the question was how the executive could be held accountable. It could be asked to those who delivered on education, for instance, what the input costs were. Schools required books, teachers, land, and water and sanitation. It had to be asked what the outcomes were.

He told Mr Terblanche that the FFC agreed with him that fiscal policy and interventions had to be re-packaged and re-engineered. The solutions of 1994 were no longer appropriate. The question was how departments could re-prioritise. It should not be a mere matter of one chief directorate talking to another. The question was what investments had to be made in relation to social and economic services to make changes.The NT was asking if re-prioritisation was happening. The FFC did not know. It conducted its work on the basis of its constitutional responsibility.

Extra spending on infrastructure was being suggested. Infrastructure growth could make services cheaper. There was agreement about the infrastructure questions raised by Mr Terblanche and Mr Nzimande. There could a spillover into cheaper services. Pressures related to the urban experience had to be managed. If not, they would cause increased instability which could lead to social protests. Human settlements and transport networks had to respond to such pressures. In the current year, the FFC had focused on urban areas. In the previous year, it had stated that the focus could not only be on the urban areas, but also had to be on the rural. There was a connection between the urban and the rural. With that, the FFC had confirmed what the Committee was saying. The detail was in the full book published by the FFC. The recommendations for 2015/16 could be looked at to get the whole picture. He asked Ms Peters to reply about learner mobility.

Ms Sasha Peters, FFC Researcher, responded to the remark by Mr Nzimande that the Equitable Share did not reflect the fact of a growing population of learners in KZN. The three case studies on learner mobility focused on the Eastern Cape and Limpopo as the biggest spender provinces, and Gauteng as the biggest receiving province. KZN had not been specifically looked at. According to the Budget Review, official data reviews had to be updated annually. The data updates had been synchronised with the three-year medium term expenditure framework (MTEF) period. It could be that the KZN figures still had to come on line.

Dr Mabugu replied about the pattern of growth in SA being not pro-poor. The question had been raised in policy circles whether economic growth in SA benefited the majority. It was not a cut and dried question whether growth up to 2008 or thereafter had been considered. Economic growth was not the only instrument for job creation. The figures could be examined to establish the relation between economic growth and job creation. For every 1% of economic growth, there was a 0.5% increase in jobs. Other levers had to be focused on.

He answered about timeframes for CoGTA to consolidate the Urban Settlements Development Grant within the context of an integrated development framework. The first set of FFC recommendations had been directed at CoGTA. The CoGTA response would be heard during the tabling of the division of revenue papers in the following year.

He answered about a credit rating system for municipalities. A previous domestic credit rating system had fallen by the wayside. The FFC had recommended working with the Development Bank of South Africa (DBSA). If the DBSA institutionalised a system, there could be some permanence. A credit rating system could be generated.

The guiding principle related to an integrated public transport system was connectivity. The places of residence, work, school and other services had to be connected. It was linked to the principle of the compact city. Linking place of residence, work and services could reduce the cost of service provision. When service costs fell, land values rose. A stable market environment created a climate for business confidence.

The Chairperson asked the NT to comment.

Mr Steven Kenyon, Director: Local Government and Budget Framework, NT, said that government responses to the FFC would be processed with the DORB during the following February. The NT would repeat most of the comments from the provinces on the Bill, and the NT’s draft responses would be circulated. It was preparing a government-wide response.

The FFC recommendations for the year had an urban focus. People who had reservations about that were unaware that the focus of the previous year had been on the rural areas. The NT liked the thematic approach, as it made it possible to respond to sets of issues, and stimulated conversation around broad themes. In the Budget review of the current year, there had been a graph that showed the distribution of allocations to rural versus urban municipalites. The FFC had stimulated conversation about the allocation of funds to rural areas, and had provided information to assist the broader debate. The urban theme would be discussed during the Medium Term Budget Policy Statement (MTBPS).

There was a tension between some of the FFC recommendations. Consolidation of grants was strongly recommended on the one hand, but on the other hand specific grants for specific purposes were also recommended. The NT supported consolidation, as part of the drive to get urban municipalities to produce their own revenue, especially for infrastructure budgets. The NT agreed with FFC policy objectives, but differed about grants for specific purposes, as that was not necessarily the best way to achieve policy objectives. The NT was in favour of an integrated approach. In the MTBPS and Budget response, the emphasis was on objectives, rather than on instruments.

Mr Essack referred to page 52 of the FFC book, where there was a summary of recommendations. When incentives and disencentives were discussed, it came out strongly only during interviews that there was a glaring absence in the strategies reviewed. None of the policies reviewed had funds allocated to them. The question was how seriously the holding of metro municipalities to account was being taken.

The Chairperson commented that metros would be called to come and account.

Dr Mateme referred to methodology. She asked if there was a means to help ascertain what was going on in Musina, where non-South Africans were outnumbering South Africans. She asked if there was a way to estimate the relevant figures. Non-South Africans were using services. They used tablets handed out at clinics. She asked if that information was available.

Dr Mabugu responded that the FFC relied mainly on Stats SA. There were also small area samples available. Exact data could be subpoenaed, and could be focused on. Data available was as recent as 2015. The FFC itself did not have the capacity to gather granular information.

The Chairperson referred to development planning and coordination, which was essential for good results. It was stated on page 14 of the presentation that development planning, coordination and State capacity were important for achieving results. The same formulation had emerged from the Committee’s visit to Malaysia. The market wanted skills to grow the economy, also through connecting with the private sector. Investec had announced on 4 July that one million internships would be created for young people across the economic spectrum. 80 JSE organisations were involved, in cooperation with national government. The task of the Select Committee was to see that such initiatives were implemented in the provinces. When asked, the reply was that it was being done on a sectoral basis.

Coordination was of utmost importance. Page 13 of the research document identified key issues that had to be briefed on during hearings. The FFC submission would be included in the Committee report to be tabled on 15 November during the Division of Revenue Amendment Bill process. The FFC would visit the provinces and connect with them.

Adoption of minutes

The minutes of 1 August were adopted without amendment.

Committee matters: OR Tambo district municipality

The Chairperson requested that the Secretariat reply to the Minister and the NT about the intervention at OR Tambo municipality. The Committee would visit OR Tambo in the fourth term. There would be a formal meeting on the NCOP programme on the following day. There was an upcoming workshop in which national departments would brief about developments and challenges in the provinces.

The Committee Secretary commented that the OR Tambo issue had been overtaken by events. It was not worthwhile to go to OR Tambo specifically for the intervention issue. He was worried if there was enough time available for a visit that had a broader intention.

Mr Gaehler added that the AG report also had to be looked at.

The Chairperson adjourned the meeting.

 

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