Division of Revenue Bill: negotiating mandates

Meeting report

Division of Revenue Bill: negotiating mandates
The Chairperson noted that the Eastern Cape did not have a representative at the meeting and asked the Chief Whip of the NCOP to present its negotiating mandate.

Eastern Cape
Mr S Mohai (ANC Free State) said the Eastern Cape Legislature was in favour of adopting the Bill. However, a report from the legislature’s portfolio committee on finance, noted some concerns:

▪ The drawn-out review of the Provincial Equitable Share Formula (PES), together with lack of response from the Financial and Fiscal Commission (FFC) to the province’s quantified infrastructure backlog report was quite disadvantageous to the province.

▪ The Provincial Roads Maintenance Grant favoured the advantaged provinces. The Accelerated School Infrastructure Development Initiative model to fund infrastructure backlogs for schools should also be considered for roads.

▪ The provincial expenditure of national state-owned enterprises should be transparent.

▪ The turnaround time for the procurement processes for disaster-stricken areas were tedious and out of sync with the immediate relief sought by victims.

▪ The Division of Revenue Bill was silent on the risks caused by medico-legal claims, though this was a threat to the equitable share.

▪ The timing of Division of Revenue Bill briefing by the NCOP and the shortened period for the submission of the negotiating mandate detracted from the effectiveness of the public participation process.

Free State
Mr Mohai (ANC, Free State) said the Free State Legislature supported the Bill.

Gauteng
Mr F Essack (DA Mpumalanga) was asked to present Gauteng’s mandate, given the absence of a representative from that province. Mr Essack said Gauteng supported the Bill. He drew the Committee’s attention to the comments by the legislature’s portfolio committee on finance. It noted that National Treasury had consulted widely on the Division of Revenue Bill by circulating a draft of the Bill. It was satisfied that the Bill had responded adequately to government’s priorities. Although there were pressing economic challenges, the Bill would uplift the standard of living in the province. These included investing in infrastructure that would attract investment; the establishment of programmes to uplift young graduates; support for small business; and the outsourcing of services to youth, women and people living with disabilities.

Gauteng would receive R102 448 billion from the equitable share and R23 077 billion in conditional grants. It noted with appreciation that the provincial equitable share grew faster than conditional grants over the Medium Term Expenditure Framework (MTEF), thereby giving provinces greater flexibility in budgeting for their priorities.

Gauteng said overall growth in direct conditional grants was strong, averaging 6.3% over the MTEF. It noted that the successful management of conditional grants often required the collaboration of several departments, but there was currently no binding requirement for the responsibilities of different departments. Clauses in the Bill would now address this shortcoming.

The Gauteng portfolio committee on finance invited key stakeholders to make submissions on the Bill and summarised them as follows:
▪ The consequences of the misappropriation of funds should not impact on the right of learners to a quality basic education.
▪ The Department of Education had to address insufficient access to sanitation facilities in public schools.
▪ Government should ensure strict adherence to regulations about minimum standards for public schools infrastructure.
▪ A reduction in the education infrastructure grant had undoubtedly impacted on the ability of the Gauteng Department of Education to deliver school infrastructure. This was reflected in the slow pace of replacing schools made of asbestos.
▪ The framework for the Maths, Science and Technology Grant should be reviewed to include the building of laboratories.
▪ National Treasury should consider allocating more money to roads infrastructure.

The Committee made two recommendations of the Division of Revenue:
▪ National Treasury should maintain a delicate balance between government debt as a percentage of GDP and fiscal policy targets without compromising service delivery.
▪ National Treasury should constantly update the data used for the provincial equitable share to ensure the validity and reliability of this data in making transfers to the provinces.

Kwazulu Natal
Mr L Nzimande (ANC KZN) said the legislature supported the Bill. They did conduct public hearings but there was a poor response to them. The only people who attended were members of the Pietermaritzburg Pensioners’ Forum. They requested that the state old age pension be increased to R2 500.

Limpopo
Mr M Monakedi (ANC Limpopo) said the Limpopo legislature supported the Division of Revenue Bill. He presented a list of recommendations from the portfolio committee on the provincial treasury:

▪ Low spending on conditional grants in some government departments and municipalities was highly unacceptable and could not be condoned. Guided by the Constitution, both national and provincial treasuries must intervene and provide the necessary support to government structures.
▪ A comprehensive plan to empower departments and municipalities should be given serious attention as non-qualification for incentive grants compromised service delivery. Limpopo Province had scored 46% instead of the 60% required to qualify for an incentive allocation under the Education Infrastructure Grant. Polokwane Municipality did not qualify for an incentive allocation under the Integrated Urban Development Grant.
▪ Deviations on funding which spent more on salaries than on services could not be condoned as it compromised service delivery.
▪ While investment trends in Limpopo were encouraging, there was a need for viable transport networks for easy access to markets. Funds should be made available for speed rail from Johannesburg to Polokwane and Musina.

Public inputs from stakeholders in Limpopo said there was a need for economic diversification. The mining and agricultural sectors should encourage product specialisation and processing opportunities in the province. Education budget allocations should pay specific attention to maths and science teachers. There was a need for multi-skilling of municipal officials and politicians.

The mandate noted that Limpopo received an equitable share allocation of R59 billion and conditional grant transfers of R9.1 billion.

Mpumalanga
Mr F Essack (DA Mpumalanga) said Mpumalanga was in favour of the Bill. Public participation in hearings had been good.

He had been asked to raise the Moloto Road project which remained a very sore issue for the province. It seemed that Gauteng would benefit more from the R3 billion allocated to the project. He had been asked to get an update on the project from National Treasury.

Mpumalanga, like other provinces, felt that the National Health Insurance allocations were inadequate. An allocation for the sanitary dignity project at schools was very much appreciated. It said the allocation for local government was not enough, considering that municipalities were at the core of service delivery.

Northern Cape
Mr C de Beer (ANC Northern Cape) said the Northern Cape supported the bill. They had held five public hearings and travelled long distances to engage with the people.

Mr de Beer listed a number of inputs from stakeholders:
▪ The revenue collection of Magareng Municipality was only 24%. It was proposed that the municipality should be declared 100% rural. In that way the infrastructure conditional grant aimed at developing rural areas would increase.
▪ The health budget must be increased to train more healthcare workers and to procure more ambulances. Mr de Beer said health services in the Northern Cape were under severe pressure.
▪ The calculation of equitable share must be fair and transparent.
▪ The Bill should encourage the development of more industries in the Northern Cape.
▪ The Bill should ensure that salaries for home-based care-givers that had been absorbed from NGOs were sustained.
▪ The Bill should ensure that people who qualified for broader housing market interventions were assisted with the application.
▪ The R2.8 billion allocation to a school infrastructure grant to eradicate unsafe and inappropriate sanitation facilities was too little.

The Northern Cape legislature called for a review of the current equitable share formula to be expedited by the incoming parliament in order to assist struggling provinces like the Northern Cape. It said municipalities should be capacitated to ensure efficient spending of funds.

North West
Mr T Motlashuping (ANC North West) said the province was in favour of the Bill. Concerns raised by the legislature included a shortage of water at certain municipalities and problems with cement haulage.

Western Cape
The Western Cape Legislature was not in favour of the Bill. Dr D George (DA Western Cape) gave the following reasons:
▪ Funding for servicing debt costs was R202.2 billion as opposed to R127 billion allocated to service delivery.
▪ The equitable share was not aligned to the population growth in the Western Cape. This impacted on learners, road infrastructure and clinics.
▪ There were no proper mechanisms to monitor the R63 billion allocated to Eskom.
▪ Funding was allocated to South African Airways, an under-performing state-owned enterprise.

The Chairperson said it was clear that the only way to address increasing demands on the fiscus was to grow the economy. He called for progress reports to be given to the Sixth Parliament by National Treasury on the recent summits on investment and job creation.

National Treasury response to negotiating mandates
Ms Wendy Fanoe, Treasury Chief Director: Intergovernmental Policy and Planning, addressed concerns about reforming the equitable share formula. She said there had been good progress in determining the principles which would underpin the process and this had been done in collaboration with provinces and the FFC. An important factor was the need for good quality and reliable data. Improvements were being made in the way information was collected about the numbers of people requiring education and health services. Attempts were being made to improve the calculation of poverty levels. Putting new data systems in place could not be done overnight.

On concerns that the equitable shares for provinces did not sufficiently take population growth into account, Ms Fanoe said the different components of the equitable share formula were updated regularly and generally reflected data at the end of the previous year.

Ms Fanoe said rising medico-legal claims were of concern to national and provincial treasuries and health departments. Measures included a sharper focus on areas where negligence claims were on the increase; improving medical record keeping; recruiting more specialised medical personnel; more regular inspections of public health care facilities; and referring possible fraudulent cases to the Special Investigating Unit.

The Chairperson said the Sixth Parliament would have to hold joint meetings of its Appropriations and Health Committees with the relevant ministers on the rising medico-legal claims.

Mr Steve Kenyon, Treasury Director: Local Government and Budget Framework, addressed road maintenance grants. On the complaint that certain provinces were favoured, he said the grants were calculated in the same way for all provinces. Grant size was determined by objective data on factors such as road usage and climate. Roads would need more maintenance in provinces with a high rainfall.

Efforts were being made to get provinces to use the same engineering standards as the national roads agency, Sanral, and to use Sanral’s maintenance routines. Incentives were provided for provinces which performed well.

On the Moloto Road project, Mr Kenyon replied R3 billion had been allocated for upgrading the whole road across the Gauteng, Mpumalanga and Limpopo provinces. Gauteng still had to transfer ownership of its portion of the road to Sanral before work on it could begin.

On the Eastern Cape’s concerns about turnaround time for disaster funding, Mr Kenyon replied the Bill provided for both the immediate release of funds and longer term funding for the repair of infrastructure once proper planning had been done. It was important for role players to know about the different types of funding so they could apply for funds within the right time frames.

On the Western Cape’s comparison of debt service costs of R202 billion with the service delivery allocation of R127 billion, Mr Kenyon pointed out that the R127 billion was actually allocated to local government. A further R612 billion was allocated to service delivery in provinces.

On supporting under-performing municipalities, Mr Kenyon replied that provinces had been allocated additional funds for this purpose. More than R2.5 billion was allocated for various forms of capacity support, but this was not achieving the expected results. The whole system was being reviewed.

On the incentives provided within grants, Mr Kenyon replied the aim was to change the way in which municipalities and provinces did their work. The incentives were small in relation to the overall grant. This meant that even if a municipality or province did not earn the 5 or 10% incentive they would still get 90% of the grant.

On the NHI, Ms Fanoe replied that additional money was being allocated over the MTEF. An indirect
grant was being allocated to national departments to launch pilot projects in provinces. One example was a project to move provincial record keeping from a paper-based to an electronic system. A new conditional grant would help with the appointment of scarce skills in the health sector.

Mr Motlashuping asked if Treasury officials were able to take immediate decisions raised during their meetings with provincial legislature finance committees. He did not know of any instance where issues raised by a province had resulted in immediate action.

The Chairperson pointed out that a Budget Council led by the Minister of Finance met every quarter with the nine provincial MECs and heads of provincial treasuries. This was where decisions affecting the provinces were taken. He asked if concerns could perhaps be better addressed at these meetings, saying Mr Motlasuping had raised a very valid issue.

Mr Nzimande suggested that the Committee should pay more attention to the provincial mandates presented at Budget Council meetings to see how they aligned with the eventual budget outcomes.

The Chairperson welcomed the suggestion and asked Committee staff to compile a research paper which could be used during the induction of Finance and Appropriations Committee members in the new parliament.

The Chairperson ended the discussion by urging Committee members to combine their electioneering with oversight and to pay special attention to the maintenance of infrastructure in the towns they visited.