The National Treasury briefed the Standing and Select Committees on Appropriations on the 2019 Division of Revenue Amendment Bill (DoRAB). They were told it proposed relatively small in-year adjustments in the allocation of funds to national, provincial and local government.
The Committees were briefed on the way in which the national tax revenue was shared between the three levels of government, and how conditional grants from national government were used to fund the provision of services by the two other levels of government.
The DoRAB proposed cuts in funding totalling R765.5 million as a result of projected under-spending on grants for school infrastructure backlogs, for bulk infrastructure projects, for a national electrification programme and for the improvement of municipal systems.
The DoRAB also proposed shifting funds between grant programmes. An amount of R300 million would be shifted to the Human Resources Capacitation Grant, which assisted provinces to fill critical health service posts in preparation for the National Health Insurance (NHI) scheme. There would be an increase of R409.9 million in funding this year for the remediation of the polluted Vaal River in Emfuleni.
Committee Members expressed concern about the under-spending. They said the amounts returned to the National Treasury should not be seen as savings when in fact they reflected failures in service delivery.
Division of Revenue Amendment Bill: National Treasury briefing
Ms Malijeng Ngqaleni, Deputy Director General: Intergovernmental Relations, National Treasury (NT), said the DoRAB contained relatively small in-year adjustments to the allocations of funds to national, provincial and local government. As background, she outlined how resources were allocated annually in the main Division of Revenue Act (DoRA). The disparity between the different spheres’ responsibilities and capacities gave rise to significant “fiscal imbalances.”
- National government’s main revenue was income tax, VAT, customs duties and other taxes. It was responsible for policing, foreign affairs, defence, higher education and social grants.
- Provincial governments’ main revenues were vehicle licences, hospital charges and gambling taxes. They delivered social services such as health and education, and were responsible for provincial roads and agriculture. Ninety-five per cent of their spending was funded by grants from national government.
- Local governments’ main revenues were property rates and surcharges on service fees. They delivered electricity, water, sanitation and refuse removal. They were 30 per cent grant funded.
Ms Ngqaleni said the division of revenue redistributed revenue to poor rural areas. Allocations to rural municipalities of R11 200 per household were twice the allocations to metros because of metros’ higher revenue raising abilities.
Provincial government functions were funded by conditional grants from national government. Conditions for the use of each grant were set out, and performance in spending the grant was monitored by national government departments. If there was non-compliance, a grant could be withheld, stopped or reallocated.
Ms Wendy Fanoe, Chief Director, Intergovernmental Relations, outlined the funding shifts contained in the DoRAB:
- R45.3 million would be shifted from the Ilima/Letsema conditional grant for assisting vulnerable black farmers. The money would be used to pay for a national food and nutrition survey by the by the Human Sciences Research Council (HSRC).
- R60.7 million in flood repair funds had erroneously been allocated to the Joe Gqabi District Municipality in the Eastern Cape under the Municipal Disaster Recovery Grant. The roads were in fact provincial roads, so the funds would be shifted to the Provincial Roads Maintenance Grant.
- R300 million would be added to the Human Resources Capacitation Grant that assisted provinces to fill critical health service posts in preparation for the National Health Insurance (NHI) scheme. The money would come from the reprioritisation of resources from other health programmes.
In order to meet fiscal targets for the year, cuts would be made in programmes that were at risk of underspending. The reductions would be to indirect grants. These were grants that were spent by the national government on behalf of provinces and municipalities, so the amounts transferred to them and reflected in their budgets would not be affected:
- R310 million would be cut from indirect grants to provinces as a result of projected under-spending of the School Infrastructure Backlogs grant, and components of the NHI grant.
- R445.5 million would be cut from local government indirect grants due to under-spending of the Regional Bulk Infrastructure Grant, the Integrated National Electrification Programme Grant and the Municipal Systems Improvement Grant.
In other adjustments, R19.5 million from the Neighbourhood Development Partnership Grant would be used by national government to complete roads projects in the Emfuleni Local Municipality and the West Rand District Municipality.
There would be an increase of R409.9 million in funding this year for the remediation of the polluted Vaal River in Emfuleni. The extra funds would come from the indirect Regional Bulk Infrastructure Grant and from under-spending on projects by the Department of Water and Sanitation.
Mr D Joseph (DA) said the presentation had not mentioned the droughts in the Northern Cape, Eastern Cape and Western Cape. He wanted to know what was being done to assist those affected. He asked what was being done to curb wasteful and fruitless expenditure, and asked for more information on the use of roll-over funds for the Vaal River emergency project.
Mr D Ryder (DA, Gauteng) said funds were shifted when it was clear they were not going to be spent as planned. He asked whether there were any consequences for failure to spend funds. There had been no mention in the presentation of adjustments to the Municipal Infrastructure Grant (MIG).
Mr Vusi Tshabala (ANC), chairperson of the finance committee of the Free State Legislature, said he was concerned about the allocation of road management grants to municipalities for maintaining provincial roads running through their areas. Councils tended not to maintain these roads because they belonged to the province. The grants should instead go to provincial governments. In addition to the Vaal River project, there was a need to consider how other water catchment areas should be maintained.
Mr M Shaik Emam (NFP) commented that there was a failure to spend funds for water infrastructure while the country was experiencing a water crisis. A large percentage of the grant for the development of urban settlements had not been spent.
Ms D Peters (ANC) said she was concerned that an Eastern Cape government official had said on TV that it would take 100 years to eradicate indecent and unsafe sanitation infrastructure. Because of inadequate sanitation in homes, children were growing up without a proper appreciation of the need for hygiene.
Mr O Mathafa (ANC) said he was concerned that under-spending was referred to as savings, when in fact it had an impact on service delivery. The Committee needed a breakdown of where under-spending occurred. There was a reduction of R257 million in the NHI programme -- what impact would this have on the NHI roll-out?
Ms R Komane (EFF) agreed with other Members that fruitless and wasteful expenditure was of serious concern.
Mr Aron Motswana, chairperson of the North West Legislature’s finance committee, said he was concerned that there was weak oversight in ensuring that bulk infrastructure grants to district municipalities were used. Unspent money was returned to national government and larger municipalities were then expected to maintain district municipality assets, even though these were not on their books.
Mr Joe Mpisi, chairperson of the Gauteng Legislature’s finance committee, asked what impact the R310 million reduction in indirect grants to provinces would have on service delivery. He welcomed the action taken by national government in tackling the Vaal River emergency. However, what was being done to penalise those responsible for polluting the river? He asked what assistance there would be for dealing with pollution of the Rooiwal Dam at Hammanskraal.
Co-chairperson Buthelezi said while the Committee’s current objective was dealing with the division of revenue, it needed to follow up on under-spending and the reasons for it. He agreed that people who polluted should be made to pay.
Co-chairperson Mahlangu said conditional grants were just that, and had to be spent according to the stipulated conditions. Officials were not concerned when funds were unspent because they were simply sent back to the Treasury without consequences for those responsible for the under-spending. Politicians should be serious in holding executives to account.
She invited the Treasury officials to respond. However, she then accepted a suggestion from the co-Chairperson that because the committee had run out of time, their response should be postponed until a meeting of the two committees the following day.
The meeting was adjourned.
Buthelezi, Mr S N
Mahlangu, Ms DG
Aucamp, Mr S
Dikgale, Ms MC
Du Toit, Mr SF
Joseph, Mr D
Komane, Ms RN
Mamaregane, Ms ML
Mathafa, Mr OM
Mlenzana, Mr Z
Peters, Ms ED
Qayiso, Mr XS
Ryder, Mr D
Sarupen, Mr AN
Shaik Emam, Mr AM