Division of Revenue Bill: public hearings; FFC & SALGA input

Standing Committee on Appropriations

08 March 2019
Chairperson: Mr C De Beer (ANC, Northern Cape), Ms Y Phosa (ANC)
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Meeting Summary

The Standing and Select Committees on Appropriations held a joint sitting to receive input on the 2019 Division of Revenue Bill (B5). The Financial and Fiscal Commission (FFC), the South African Local Government Association (SALGA), the Western Cape Forum for Intellectual Disability (WCFID) and Equal Education all submitted their comments to the joint sitting.

The FFC welcomed many of the amendments to the Division of Revenue Bill, noting the largely negative macro-economic outlook of the country and growing gap between revenue and expenditure. Growth in the provincial and local equitable shares was praised, as was the augmentation of social grant funding. However, the FFC registered its disappointment at the cuts in funding to well-performing grants, like the Human Settlements Development Grant (HSDG).

SALGA reported that local government finances were under intense pressure at the moment, with 40 municipalities having negative cash balances. It suggested that local government was underfunded to the tune of roughly R55bn, and called for an increase in the share allocation to local government as well as a relaxation of conditional grants like the Municipal Infrastructure Grant (MIG) to assist municipalities in addressing the maintenance backlog. It also called for a reduction in the reporting and compliance burden on municipalities, and the withdrawal of Eskom from the electricity distribution market.

The WCFID reported on the underfunding of special care centres that served learners with severe learning disabilities, asserting that the Department of Basic Education was not fulfilling its mandate, and violating a court order by not funding and training staff at these centres. It called for a restructuring of the conditional grant for learners with learning disabilities, and the introduction of a pilot programme to begin implementation of the concessions it had won in the court order.

Equal Education lamented the decrease in real appropriations towards the education sectoral budget, which was not even tracking inflation. It also criticised the slow delivery in infrastructure advancement by the Department of Basic Education. It recommended the moving of Early Childhood Development into the ambit of the DBE, an increase in the education sectoral budget and a reversal of the R7bn cuts in grants in the medium term expenditure framework (MTEF).

Discussion was focused mainly on the contentions by SALGA over the underfunding of municipalities, the reporting burden and the negative finances of municipalities. The Committee was critical of the view that underperforming municipalities should be given more money, and Members and the National Treasury expressed concern over demands to restructure the MIG to allow it to be used for non-infrastructural purposes.

The FFC was also asked for its views and recommendations on how to close the revenue-expenditure gap, as well as to ensure better performance with the conditional grants, and to indicate the service delivery impact of grant funding being slashed.

Meeting report

Financial and Fiscal Commission (FFC) presentation:

Professor Daniel Plaatjies, Chairperson: Financial and Fiscal Commission, introduced the delegation, and said the FFC would appreciate a longer time slot to report on the Division of Revenue Bill from the 6th Parliament, to help with the drafting process.

The FFC presentation began by giving an overview of the President’s policy priorities, noting that the macroeconomic environment had been negative since the 2009 financial crisis, with inflation at the high end of the 3-6% band and muted economic growth. The FFC emphasised the revenue shortfall of R16.3bn necessitated significant expenditure reprioritisation, while state-owned enterprises (SOEs) continued to pose a key risk to the fiscus.

While economic prospects had deteriorated, fiscal spending continued to exceed revenue as real growth continued to decelerate. The negative economic outlook was informed by recessions, the negative outlook of ratings institutions, institutional deterioration, uncertainty causing structural degeneration, and the financial, operational and governance crises of SOEs. Current and expected demand remained subdued, while public investment growth contribution slowed. Since the 2008-09 financial crisis, revenue and expenditure trends had diverged significantly, despite fiscal contractionary measures having been implemented, including the introduction of an expenditure ceiling, cost-containment, raising of marginal income tax, an increase in VAT, and the cutting of direct conditional grants. With the economy locked in a low-growth spiral with rising deficits, it was evident that the current expenditure trajectory would need further moderation.

The FFC delegation then went through its overview of the 2019 Division of Revenue Bill (B5), stressing that it largely agreed with and welcomed the amendments made.

Regarding changes to the provincial fiscal framework, the FFC welcomed the incorporation of the substance abuse and social workers’ employment grants into the Provincial Equitable Share (PES) allocation, noting the need for greater oversight in this transition period. The PES was expected to grow at 7.2% over the medium term expenditure framework (MTEF). The Commission identified that conditional grants bore the brunt of consolidation, and agreed that underperforming grants should have funding cuts, while not interfering with approved service delivery planning. It raised the example of cuts to the Human Settlements Development Grant (HSDG), which it saw as performing well, and would have a significant impact on service delivery.

The FCC welcomed the 3% average increase in the Local Government Equitable Share (LGES), despite its concern over the poor growth of conditional grants. It further praised the introduction of the Integrated Urban Development Grant (IUDG) and the ring-fencing of funds in the Urban Settlements Development Grant (USDG) for the upgrading of informal settlements.

The Commission also held a favourable view of the 7.4% augmentation of social protection expenditure, emphasising that social protection played a key role in poverty alleviation.

The Chairperson thanked the FFC, and called for its submission to be forwarded to the chairpersons of the finance committees in both houses. He gave the floor to SALGA.

South African Local Government Association (SALGA) Presentation

Ms Thakane Lekhera, Programme Manager, SALGA, said SALGA noted that the LGES comprised 8.9% of the 2019 budget, compared to 48% for the National Equitable Share (NES) and 43% for the PES. Conditional grant transfers would amount to R52.4bn in 2019/20, growing at a nominal average of 7.3% in the MTEF.

SALGA contended that local government finances were under pressure. Of 257 municipalities, 128 were in financial distress according to the National Treasury, just 145 had received unqualified audits, which was a deterioration, and 40 municipalities had a negative cash balance by the end of the 2017/18 financial year. Revenue collection rates were declining, causing higher debt service costs, and the number of municipalities adopting unfunded budgets had increased to 113.

According to SALGA, local government was severely underfunded, to the tune of R55bn. This could be eased or ameliorated by:
A higher allocation to the LGES;
The restructuring or flexibility of conditional grants;
Incentives to force commercial customers to settle debt;
Reduction of the reporting and compliance burden;
Removal of Eskom from the distribution market;
Addressing confusion over the scope of the differing spheres of government;
Requiring other spheres of government to settle their debt with municipalities.

The crux of this underfunding was that the 1998 White Paper on Local Government had overestimated the revenue potential of municipalities, such as the on-selling of bulk products and the ability to access debt markets. Maintenance was a crucial area, and saw a R50bn shortfall in the financial year. Furthermore, the reporting and compliance burden significantly increased operating costs.

SALGA also protested that the current structure of conditional grants was counter-productive, including its cost to small municipalities, the unpredictability of funding and the lack of focus on maintenance.

SALGA recommended that, in the short-term, the Municipal Infrastructure Grant (MIG) should be restructured to allow it to be used for any area of the municipality, including maintenance, as well as the settling within 90 days of outstanding accounts of other spheres of government with municipalities. In the long-term, SALGA proposed a review of the municipal funding architecture, the overhaul of conditional grants, and consideration being given to the withdrawal of Eskom from the distribution market.

Chairperson De Beer thanked SALGA for the presentation, and moved to the Western Cape Forum for Intellectual Disability.

WC Forum for Intellectual Disability (WCFID) presentation

Ms Vanessa Japhta, Advocacy Manager, Western Cape Forum for Intellectual Disability, introduced her organisation as a representative of 200 members, individuals, principals of special schools and special care centres. The presentation would focus on special care centres, which were non-governmental organisations (NGOs) that had provided a solution to the need created by the Department of Basic Education’s (DBE’s) refusal to admit students with profound disabilities.

The Forum provides a network for centres, provides resources and training, as well as advocacy. The children represented are excluded from schools despite the constitutional requirements and the Schools Act requirement that children 5-17 are provided with education and reciprocal responsibility from parents. These children have intelligence quotients (IQs) of 20-34, and other disabilities. The most profound disabilities apply to children under 20 with other disabilities, who are unlikely to be able to take care of themselves.

The Forum began in 1997 to represent these children, and had then marched and taken the national and provincial governments to court and won a court order requiring that all children (in the Western Cape) had affordable access to basic education at special care centres, including infrastructure funding and staff provisioning (remuneration), transport, training and accreditation of staff.

The WCFID had looked at jurisprudence. In each case involving adequate facilities, payment of staff and learner transport, the courts had ruled that the DBE had a mandate to fulfil this as components of education, in coordination with other departments having a supporting role. In the Western Cape, the Department of Social Development (DSD) and the Department of Health had funded centres directly as required by order, but the funding was inadequate. The Western Cape Education Department (WCED) provided no direct funding to centres. The case continued to be one of health and care, not education, which was against the court order.

The DBE had awarded a conditional grant for education of learners in special care centres. Currently, the WCED used only R11 million to fund these centres, which comes from this grant. The response had been there but was inadequate, with no funding for infrastructure and inadequate staff salary contributions. These centres were doing work on behalf of the government in possession of a court order compelling provision of funds from the government. The transport contribution existed but was inadequate, though the Western Cape DSD was funding a pilot for buses. No accredited staff training was available either, as required by the Division of Revenue Act (DORA) 2018.

The Division of Revenue Bill B5 of 2019 used the same framework as last year. It was key to evaluate how the DBE had performed in the past year and raise questions as to management of the grant, and whether it was used for its intended purpose. Looking at DORA 2018, most of the money from the conditional grant was spent on staff remuneration, and funds were withheld from the Eastern Cape, the Free State, Limpopo and Northern Cape due to underspending. There was a worry that the money required was not being spent, which ran the risk of the grant being downgraded due to non-utilisation.

WCFID believed that the performance of a conditional grant could not be tracked without a statistics management framework. It wanted the learners to be on national and provincial databases with a requisite ID number, and then that they had access to resources children in schools had. DORA 2018 required development of an endorsed training programme for caregivers at centres. The current system was ad hoc and gave no clear certification. In terms of DBE’s reporting on allocation and expenditure – the province could report expenditure, but delivery often occurred only far later. Learners were further assessed in groups only, not individually as required. The current conditions of grant structure were inadequate in terms of the requirements of court orders.

WCFID thus asked for a revision of the conditional grant, as it did not serve the purpose it was meant to.  The DBE must spend the grant timeously and efficiently, and report annually, as well as urgently investigate a pilot programme to implement the court order.

Chairperson De Beer noted that the document must be taken by Members to their constituencies, where they must should these centres. He thanked the WCFID, recommending it attend the provincial hearings on the DoR Bill of 2019.

Equal Education presentation

Ms Sibabalwe Gcilitshana, Parliamentary Officer, Equal Education (EE), presented Equal Education’s submission on the 2019 Division of Revenue Bill.

While basic education made up 14.4% of the budget, allocations to the DBE had not kept up with inflation and had decreased over the past four years, meaning real appropriation had declined.  School infrastructure continued to be a challenge for basic education, and adoption of norms and standards by the DBE positively correlated with infrastructure service delivery. While the improvement in delivery was appreciated, the pace of delivery was too slow, in part due to insufficient budget allocations.

Equal Education welcomed President Rampahosa’s policy on Early Childhood Development (ECD), but noted that these commitments were not reflected in the Budget Speech.

Ms Gcilitshana said that the PES formula had to be revised, as it failed to account for the high costs of providing education, especially in rural areas, and it welcomed Treasury’s commitment to review the formula.

Equal Education recommended:

Consideration of an increase in the education sectoral budget, and for the DBE budget to at least track inflation;
Reversal of the R7bn cut to school infrastructure grants in the MTEF;
Migration of ECD to the DBE;
An investigation into the feasibility of a scholar transport grant.

Chairperson De Beer thanked Equal Education, and said that this presentation was homework for the Members. On Tuesday, the Standing Committee would consider a report to be tabled in the National Assembly by Wednesday. The matters raised by stakeholders had to be replied to by Treasury by Monday.

Chairperson Phosa thanked Members and presenters for their insightful presentations. The Members had received briefings on the 2019 DoR bill as part of the public consultation required by the Money Bills Act of 2009. For easy facilitation, Members could ask questions from any presentation.

Discussion

Mr M Shackleton (DA) directed the majority of his questions at the FFC. In terms of conditional grant readjustment not interfering with approved service delivery plans – would this be feasible? If a 1-year window period for the grant for the upgrading of informal settlements was insufficient to evaluate its performance, how long would be? He requested the FFC to make recommendations of fiscal contractionary measures that would close the revenue-expenditure gap, as well as measures to address declining municipal revenue collection. He wondered what the FFC made of the child grant not meeting the food poverty line.

Ms Nkunzi (ANC, Free State special delegate) directed her questions at SALGA. In Slide 6, she wanted an explanation of the meaning of “address confusion between local government and other spheres”; the roles and functions of local government were clear, as detailed by Section 152 of the Constitution and the Intergovernmental Relations Framework Act. On conditional grants becoming costly, especially to small municipalities, conditional grants were there for a specific reason. Why were they more expensive in small municipalities? Conditional grants were also being used for administration and other issues, instead of their target. SALGA were saying that conditional grants were counterproductive -- surely it could not be saying that infrastructure grants must be used for other purposes? The Municipal Infrastructure Grant (MIG) could not be used for salaries. The issue was that municipalities had been turned into employment agencies, and paid their employees exorbitant amounts. The White Paper was still relevant, but the running of municipalities must be addressed.

Ms D Senokoanyane (ANC) asked the FFC what the implications for service delivery would be if conditional grant funding was reprioritised away from underperforming grants. Regarding national incentives enforcing commercial customers to settle debt, she asked what SALGA’s suggestions would be on this matter. She also asked for a clarification of what reducing the compliance burden on municipalities meant. Furthermore, did SALGA think municipalities would cope if Eskom was removed from the municipal electricity distribution market? Companies did not pay, individuals did not pay, and electricity got stolen. She agreed on the necessity for other spheres of government to settle their debt with municipalities. She also asked the WCFID for clarification of the number of organisations involved, what the status of this organisation was, whether they were NGOs, and what their geographical spread was. Why did the WCFID prefer the Western Cape and Gauteng for a pilot project? On the issue of teachers not being accredited, who were the caregivers and what was their status? Was the Department of Social Development involved in this process?

Ms M Manana (ANC) said that when SALGA last presented to the Committee, it had raised the issue of revenue collection decline, and indicated that some of the municipalities were not issuing their bills to customers. She said even she did not receive her municipal electricity invoice, and so could not pay her bills. If municipalities were not serious about revenue collection, they would fail. She requested a list of the 40 municipalities with negative cash balances identified by SALGA. She further commented that many of SALGA’s issues and confusions had been addressed at the Budget Forum. She requested the FFC to enlighten the Committee about the areas of public sector investment that had slowed down. What was the FCC’s assessment of the announcement of assistance to Eskom, and was it really budget neutral? Would it be enough to plug the hole in its balance sheet?

Ms S Shope-Sithole (ANC) asked the FFC how it could assist the Committee in oversight in a manner that was effective. She expressed her worry when hearing that local government accountability was deteriorating, and wondered whether it was not caused by the fact that the Committee had not been effective as overseers. The first Secretary of the Treasury of the USA, Alexander Hamilton, had said that “people will not account unless they are held to account”. The question of accountability reflected on Members of Parliament (MPs). When MPs identified corruption, their salaries should be retained as it indicated a failure of oversight. The Constitution’s designers were clear on the need for the legislative arm – its task was to oversee. Was the Committee doing good work? Could the FFC advise the committees on what to do differently so there was not deteriorating accountability in South Africa?

Chairperson De Beer said that there would be an induction period during the constitution of the 6th Parliament, and that he would make a recommendation to the leadership that the FFC should be part of the induction process. This involvement would be in the area of fiscal oversight – how to measure performance, what to do to improve results and the issue of accountability. He noted that SALGA had said that reporting and compliance were burdens: municipalities, as a sphere of government, must account in terms of the Municipal Finance Management Act (MFMA) and Constitution, which were law. He proposed that the Standing and Select Committees on Appropriations, as well as the Committees for Cooperative Governance and Traditional Affairs, engage in quarterly financial and performance reviews on municipalities in terms of Chapter 6 of the Budget Review.

Mr A McLoughlin (DA) wanted the FFC to give its view on introducing clauses on higher levels of penalties or consequences for non-compliance. Commenting that “when the cat’s away, the mouse will play,” he said once means to punish people for non-compliance were introduced, the culture of non-accountability would change. Regarding the shifting of conditional grants to the PES, who did the FFC think should provide the oversight it called for? Parliament could not be at the coalface all the time, but there must be some mechanism to say who must be responsible for the oversight, and some kind of culpability must be attached to failing to provide it. He also wondered why the FFC saw the HSDG as performing well, while the Treasury proposed the opposite.

Regarding SALGA’s proposal on the reduction of reporting and compliance, he had been in local government when the Auditor-General (AG) had introduced a list of new systems. This was all very well, but if there was a desire for municipalities to comply with systems, that required new staff which required a budget that was often not available. He agreed that this could be a burden, as it required specific people to do compliance. He expressed his sympathy over the confusion of powers and functions between local and other spheres of government. He recalled raising a fuss a while ago about toilet quality in schools in his municipality. The DBE had said it was being blocked by municipalities, and the municipalities had said it was the Department of Public Works’ problem -- buck-passing was common in local government. There should be better delineation. In terms of underfunding of local government, he emphasised that the municipality should receive far more than 9% of budget as they were at the coalface of government. Local government could not afford the debt servicing costs entailed in borrowing.  

Chairperson Phosa commented that during the budget process, the Minister of Finance had invited the public to provide suggestions on the budget before it was taken to Parliament. Had the presenters made presentations to the Minister before the budget was presentated? The Committee could not start amending the budget at the tail-end of the process. SALGA had made a point on the underfunding of local government. She asked whether the report on underfunding commissioned by SALGA had been made available to Treasury. Did this study give statistics on the types of municipalities that were underfunded, and were specific municipalities identified? She said the Committee would like access to the report.

Regarding the underfunding of municipalities, what was the main contributing factor to this issue and what would resolve it? She asked SALGA to clarify its contention about the grant structure being characterised by unpredictability of funding, given that South Africa had a Medium Term Expenditure Framework, which made the budget process more transparent and predictable. In October, the budget got reviewed, so the issues identified by SALGA must be presented for correction during the adjustment process. In terms of MIG expenditure, municipalities were required to project MIG spending plans, which was what determined this budget, to ensure that resources were spent for their intended purposes. She said the FFC’s budget review had put emphasis on fact that the 2019 DoR bill was highly redistributive -- had it assessed how the budget was targeted towards rural provinces and the poor? Grant allocations to municipalities continued to bear the brunt of cost cuts. The National Treasury had a principle that where money was not spent, it would be cut and reallocated to where it would be best used. One must accept that where the budget had been cut, it was due to underperformance, and measures must be implemented to try and strengthen the performance of grants. As the two committees, they would like the FFC to explain if there were specific conditional grants that should not be cut.

FFC’s response

Prof Plaatjies responded to the questions on oversight. He gave the example that when the intervention in the administration of the North West province began, the chairperson of that committee had approached the FFC to ask its view on what should be included. He expressed his disappointment at the range of Parliamentary engagements, in that it was difficult for committees to know what the utility of the FFC was – that it was a constitutional structure that must be called in for votes on appropriation. The FFC had input on the performance of budgets, but had not been called upon to give this input. If an educational visit was done, it was always worth approaching the FFC on the progress. Some committees call the FFC only when they struggle to fill an agenda and have serious issues. The FFC must be given fair notice to prepare.

Regarding consequence management and penalties in conditional grants, there was an issue of the relationship between principals and agents. Sometimes there were multiple principals. For instance, with municipal grants, the Treasury, provincial departments and the Department of Cooperative Governance and Traditional Affairs (COGTA) were all sometimes involved simultaneously as principals, and there was a shirking of responsibility where things went wrong. In terms of penalties, the PFMA and Public Service Act (PSA) were clear that where corruption was obvious there were laws to address this. In some provinces, conditional grants were spent first, and then the equitable share allocation -- which was municipal money -- was drawn down. Revenue collection in municipalities was a major issue. The FFC could not give concrete input on SOEs, as guarantees, costs and other issues remained unclear.

The decline in public investment growth looked specifically at machinery, equipment and construction sectors. There were three reasons for low public investment growth in the period under review: the economic slowdown; public expenditure as a whole prioritised salary costs first, and investment later; and there was a fiscal shift to restructuring and reorganisation of SOEs, rather than investment.

On the revision of social spending, when adjustments were made, they were usually controls for existing projects, but when one cut conditional grants, maybe projects that were already committed were safe, but projections in Municipal Integrated Development Plans (MIDPs), for instance, could suffer. The Treasury was sitting in a position where conditional grants were not performing. Part of the problem was insufficient preparation for conditional grants to kick in, where implementation capacity was not forthcoming at the time of implementation. However, it took 3-5 years for conditional grants to show performance -- a one-year pilot period was not sufficient to assess performance.

The FFC would like to see an increase in the Child Support Grant (CSG), but thought that in the current fiscal situation, the increase was sufficient to cover inflation. Furthermore, the CSG was not isolated – social grants were part of a wider package. Regarding oversight on the provincial equitable share grant transition, the relevant department would be the provincial DSD. The FFC noted the serious accountability issue, especially in terms of the disconnect between the executive and legislature, and the executive and provinces. The accountability chain was problematic -- the problem was structural.

The FFC agreed that underperforming grants had to be cut, but with the caution that they had been given a sufficient implementation period. The FFC would have maintained funding to the Human Settlements Development Grant. The HSDG had been at 99% expenditure, while input costs were growing much faster than the rate the grant was growing. The outcomes associated with the HSDG were smaller and smaller because of this. In some instances, municipalities could build houses for only one part of community, which created social tension. Poverty was urbanising, as people who were poor moved to urban areas in an attempt to alleviate their poverty. The Provincial Equitable Share remained redistributive, targeting Limpopo, the Eastern Cape and the Free State, all rural provinces.

SALGA’s response

SALGA responded to the question raised by Ms Manana, regarding the non-issuing of municipal invoices. This question had been raised at a SALGA PEC meeting, and the outcome had been that the relevant committee had to deal with it. If the matter was not resolved, it would be taken up with SALGA’s national executive committee (NEC).
Ms Lekhera addressed revenue collection, and said the implementation of control and debt management policies and enforcement through by-laws had been problematic. If this could be addressed, revenue would be increased. The President had mentioned the culture of non-payment in general. SALGA, COGTA and the Treasury had launched a campaign encouraging payment for municipal services. SALGA appreciated and acknowledged the recommendation to review past municipal financial performance. Regarding the report on municipal underfunding, it had just been finalised and tabled at SALGA’s national working group, which gave it permission to present it to the Committee. When it had been through the structures at SALGA, it would be given to the Committee and Treasury. Clear powers and functions for local government would correct issues. SALGA noted it would correct the wording of its contention on “unpredictability of funding”.

SALGA said that it was having a serious problem with underfunded mandates. There was a serious challenge where it found salary gaps from one municipality to another, which left gaps as employees moved across municipalities. COGTA was supposed to submit a review on SALGA’s report, which it had not done yet. Issues of special planning involved many stakeholders, which caused confusion and a decline within the sector. In addition to declining revenue, most households could not afford their municipal debts. In areas where Eskom was directly providing services, municipalities struggled to claw back debt. As a way to increase revenue, SALGA was proposing the introduction of smart metering for water and electricity, which would help to ensure payment and revenue collection.

A compliance framework was of course necessary, but there were different sectors with different requirements. Was the framework workable, did it do what it what it was supposed to, did it have value for municipalities? Municipalities should not be overburdened.

SALGA was undertaking a study in cooperation with the University of Johannesburg into the feasibility of electricity distribution without Eskom.

Ms Shope-Sithole asked the FFC to look at the possibility of a concerted effort of training municipalities on budgeting, noting the importance of grants for rural areas. Communities suffered when budgetary discipline was not maintained by local governments. National and provincial governments’ role was to help, not penalise, local government.

Chairperson Phosa asked SALGA to tell the committee about the success of training local government, as funds were earmarked for this in the budget.

Ms Nkunzi said that the equitable share in very small municipalities was meant for salaries and similar expenses, while conditional grants were not. Furthermore, one could not expect communities to pay when leaders did not.

Chairperson De Beer recalled the case study of OR Tambo Municipality, where the NCOP was requested to help the municipality to secure funds after it had been ordered to return R90m to Treasury. The issues at stake had been reporting and disalignment between COGTA and the Treasury. There must be alignment across the spheres and sectors of government. Parliament needed to deal with a study by the University of the Witwatersrand on interventions.

Chairperson Phosa referred to the presentation which spoke about municipalities in financial distress and with negative cash balances. What was being done to turn this around? If municipalities were demanding an increase, they would have to address this, as more money would not help where local government service delivery did not work.

SALGA responded that, with regard to the MIG being used in other areas, it encouraged that the MIG may be used mainly for maintenance on infrastructure. R35bn of the local government shortfall was attributable to operating expenditure, including the maintenance deficit. If the MIG could be flexible to cater for the maintenance of infrastructure, this would help. Regarding the financial distresses of municipalities and what was being done, the implementation of policies was an area that it struggled with, especially in supply chain management. SALGA had to capacitate members in this area. It would provide a report to the Committee about the success rate in training.
           
Chairperson Phosa again asked what was being done to turn around municipalities to justify an increased budget. She was not sure more money would be well used if it were given. Municipalities in financial distress were involved in wasteful expenditure, irregular expenditure and deviation from the law.

Chairperson De Beer said he was pleased that SALGA was conducting workshops. When attendees went back to municipalities, they were supposed to implement what they had learned, so something clearly was going wrong between the workshop and the implementation. Before these trainees went home, SALGA should test them.

SALGA thanked Chairperson De Beer for his recommendation. The current short-learning programme restructuring would help to capacitate local government.

WCFID’s response

Ms Japtha explained that the WCFID was an NGO with a network of 220 members, including 72 special care centres covering 2 300 children. It did not fund, manage or monitor centres, but was merely a network. The DSD and Department of Health did this to some extent. Regarding the suggested pilot in the Western Cape and Gauteng, the funds of four provinces had been withheld, and the unspent funds returned to Treasury. Could these unspent funds not be used to pilot an implementation of the court order? Regarding special school teachers, the DoR Act 2018 states that special school teachers must be trained to teach. The WCDSD had taken the lead in the implementation of the court order in the absence of the WCED’s participation. Slide 8 showed the WCDSD and WCDoH funding commitment. These were welcome contributions, but could not be compared to the DBE’s per capita grant. Both Limpopo and the Eastern Cape organisations had reached out to the WCFID about the lack of government funding.

Further discussion

Professor Plaatjies commented that life in a local municipality was not easy. In terms of the provision of goods, services, electricity and water, he doubted there was a difference in pricing between metros and local municipalities. There was an asymmetry of information between SOEs and local municipalities, which showed in the costing and pricing of electricity to local municipalities. In local municipalities, there were huge pockets of stubborn poverty, with no disposable income, little revenue to be collected, or ghost towns where mines had shut down. There was a large gap between the mandate of local municipalities and the revenue they could collect. It did not matter how one looked at zero – it remained zero. Going forward, there was a need to rethink municipalities. Did South Africa need 257 municipalities? Did it need district municipalities? He was glad the President had looked at the macro-organisation of the state.

Chairperson Phosa proposed that these inputs should be presented in a direct engagement with the Treasury.

Chairperson De Beer recalled that there would be a lekgotla after the elections which would include the National Treasury.

Mr Steven Kenyon, Director, Intergovernmental Budget Process, National Treasury, said that the Treasury would submit a list of short responses on Monday to facilitate the committee’s work. Both the FFC and SALGA had made comments on increasing flexibility in the use of grants, but cautioned there was a need to balance this flexibility, seen even in the FFC’s recommendations. Grants like the MIG gave municipalities the capacity to choose which new projects to implement, but they could be used only on poor-serving infrastructure in certain areas. Looking at what’s happened recently, it’s hard to look at this situation and say there was a need for giving increased discretion to municipalities with grant money. Municipalities with good governance should have greater flexibility, but badly governed ones must be more tightly controlled.

SALGA had mentioned the Local Government White Paper, but had not discussd how funding had changed since the White Paper was published 20 years ago. This was a statement of fact, not policy. The figure for self-funding for municipalities had decreased to 70% today from 90% at the time of the White Paper’s publication. The paper had set out useful principles, but its numbers were dated.

On suggestions for maintenance funding from the MIG, SALGA and the municipalities were keen to emphasise local government ownership of municipal assets. If national government had to fund both the construction and maintenance of assets in municipalities, who was really accountable and had ownership of these assets? Equitable share funding did include a provision for maintenance, from which municipalities had to provide maintenance. Municipalities must be accountable for taking care of assets if they wished to claim ownership thereof.

Chairperson Phosa thanked the National Treasury for its input. She reminded Members that if they had further questions, they ought to submit them to the Committee secretary. She gave SALGA a return date of 12 March for the report on the underfunding of local government it had commissioned, and emphasised the need for greater oversight on provincial and municipal spending, which SALGA had a role in. Oversight should not present challenges to service delivery, and the taxpayers’ money should deliver impact. She took note of the issues raised in the education sector by Equal Education and the WCFID.

The meeting was adjourned


 

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