Division of Revenue Amendment Bill: public hearing & Permanent Delegate & NT briefing
21 November 2019
Chairperson: Ms D Baartman (DA)
The Committee was briefed on the Division of Revenue Amendment Bill and a public hearing from a concerned citizen about the good performance of the Western in spite of poor financial allocations. The Division of Revenue Amendment Bill (DoRAB) makes amendments to the DoRA (Act 16 of 2019). Section 12(4) of the Money Bills and Related Matters Act requires that the Minister of Finance tables a DoRAB with the revised fiscal framework if the adjustments budget effects changes to the DoRA
The Committee heard that the disparity between the spheres of government’s responsibilities and fiscal capacities gives rise to significant fiscal imbalances. The National government’s main revenues came from income tax, vat, customs duties and other taxes. Province’s main revenues came from vehicle licenses, hospital charges and gambling taxes. Local Government’s main revenues were received through property rates and surcharges on services fees.
Members sought clarity on the conditional grants process; the manner in which the National Treasury monitored the money, projects and the governance of it; the R25 million that had been allocated to Kannaland as part of the reallocation in the Regional Bulk Infrastructure Grant but was then taken away; and the criteria which determined whether funds would be either withheld, stopped or reallocated. Members were confused as to how undocumented people were accounted for; and sought clarity as to the methods utilised to count them. The topic of gender budgeting was an issue concern to Members and they were keen to know whether or not the National Treasury was in the process of dealing with the matter. The Committee noted that the National Treasury was the custodian of the fiscus and as such ought to lead by example and follow in that route.
Members asked whether the age structure of the population and aging society were considered in the budgeting process and what the considerations were regarding the Provincial Equitable Share Formula. The Committee asked what the risks were where money was wrongly allocated as they felt it was important to know what happened to the departments who had received such allocations. Members heard that it was a difficult task to monitor the funds being spent as there were over R100 billion in conditional grants paid to provinces and national officials could not be at each and every project for oversight. There were over R40 billion in municipal conditional grant allocations that were transferred directly. The Committee felt that it was refreshing to hear that two things were done to make the transfer of funds more manageable. One of which was the reliance on Provincial CoGTA’s. Provincial CoGTA’s managed the oversight visits on behalf of the National CoGTA and therefore monitored municipalities.
In terms of easing provincial allocations the National Treasury had also moved from using census data for the age profile to using midyear population estimates which were more dynamic and updated every year. Members were critical of the use of a formula for resource allocation as it did not have an explicit rural factor in it. Members urged that this became a key area of focus. The Ilima/Letsema Grant was a key area of discussion as the Committee wanted to know if this grant could assist with drought issues or only infrastructure specifically.
The oral submission hinged on the fact that the Western Cape was the best performing province in the country yet it received low financial allocations. The City of Mbombela in KwaZulu-Natal which has very much the same type of budget in the last financial year received R330 million as opposed to Drakenstein’s R33 million. The Drakenstein was doing a sterling job but at the cost of them taking up loans to fund most of their projects. The presenter of the submission appealed to the National Treasury to help with the issue. The Committee heard that to the address this issue one of the changes the National Treasury made in this year’s Division of Revenue Act was the introduction of the new grant specifically for B-Municipalities. This prompted Members to ask which municipalities qualified for the Integrated Urban Development Grant (IUDG) but did not apply and which municipalities applied for the IUDG but did not qualify.
Briefing by the National Treasury on the 2019 Division of Revenue Amendment Bill
The Provincial and Local Government Fiscal Framework was outlined. The allocation of resources flowed from the division of functions among the spheres with the disparity between the spheres of Government’s responsibilities and fiscal capacities giving rise to significant fiscal imbalances. National governments main revenues came from income tax, vat, customs duties and other taxes. Province’s main revenues came from vehicle licenses, hospital charges and gambling taxes. Local government’s main revenues were received through property rates and surcharges on services fees.
The Division of Revenue redistributes resources to poor rural areas. South Africa’s tax base is concentrated in urban areas. The allocations through the Division of Revenue transfer are higher per capita/per household amounts to rural areas. The Provincial Fiscal Framework takes account of different pressures facing each province and allocates larger per capita allocations to poorer provinces, and provinces with smaller populations. Allocations to rural municipalities of R11 200 per household is more than twice as much as to the metros (R4 900), due to metros’ higher own revenue raising abilities.
Structure of Allocations
Equitable share funds are unconditional transfers. Conditional grants are transfers that can only be spent for the specified purpose and subject to conditions. Indirect grants are spent by national departments, for the benefit of provinces/municipalities. The National Government received 48%, whilst the Provincial Government receives 43%, followed by Local Government receiving only 9% of the allocations.
Provincial equitable Share (PES) formula
The Provincial Equitable Share is allocated through a formula with six components. Data used is updated annually to reflect changes in relative demand for public services. There are two main types of data sources for the PES formula: Official data from StatsSA and Administrative data from the National Departments of Health and Basic Education. The Data is objective and cannot be manipulated. Data updates are reviewed by the Technical Committee on Finance and approved by the Budget Council. The structure of the formula is currently under review.
Annual Data updates to the PES Formula
SA has a fast population growth and significant migration (typical of a developing country). This leads to changes in the demand for services in different regions. Data that informs PES allocations is updated annually with the most recent data. New data is phased-in over 3 years to allow time to adapt to funding changes
Local Government Fiscal Framework
Services for poor households are mainly funded through transfers from national government (some cross-subsidisation within municipalities is also expected). Services for non-poor households and businesses are paid for from own revenues. For the whole of local government, own revenues fund 70% of budgets, but in rural areas (with high poverty rates) transfers can fund up to 80% of budgets – size of own revenues determined in part by high volumes of water and electricity consumed by non-poor households and businesses.
How the Local Government Equitable Share formula works
LGES Formula ensures larger allocations for poor municipalities. The Formula has two main parts:
Part 1 – Basic services component funds the delivery of free basic services and accounts for most of the funds allocated. Part 2 – This part directs greater funds towards municipalities that cannot raise substantial own revenues; institutional component funds admin costs; community services component funds general municipal services. Municipalities must still budget for how funds will be used. Government also allocates nearly R1 billion per year to subsidise the cost of councillor remuneration and ward committee stipends in poor municipalities (for grade 1-3 municipalities).
Conditional grants are transfers to provinces to fund several large (and some smaller) functions. Conditions for the use of each grant are set out in a framework (gazetted in terms of Section 16 of DoRA [Division of Revenue Act]). They are administered by a national department that is responsible for monitoring performance and adherence to the grant rules gazetted in terms of the Division of Revenue Act. National Treasury monitors the financial performance of conditional grants. Some grants are designed to fully fund a function and others to supplement provincial/municipal funding. If there is non-compliance or underspending in conditional grants, funds can be either withheld, stopped or reallocated
Overview of the Division of Revenue Amendment Bill (DoRAB) Process
The Division of Revenue Amendment Bill (DoRAB) makes amendments to the DoRA (Act 16 of 2019). Section 12(4) of Money Bills and Related Matters Act requires that the Minister of Finance table a DoRAB with the revised fiscal framework if the adjustments budget effects changes to the DoRA. In the 2019 adjustments budget, no changes were made to the provincial and local government equitable shares. The 2019 DoRAB clauses also replace a reference to the incorrect clause in the Money Bills and Related Matters Act in the preamble of the 2019 Division of Revenue Act – Section 7(3) of the Money Bills and Related Matters Act was erroneously referred to, this is now replaced with a reference to section 7(1).
Shifting Allocations between Spheres
- Shift of direct funds to new indirect conditional grant for agriculture. R45.3 million of the Ilima/Letsema direct conditional grant is shifted to a newly created indirect component of this conditional grant – an indirect grant is a grant in which funds are spent by a national department on behalf of a province/municipality (these allocations-in-kind are shown in Schedule 6). The purpose of the shift is to fund the National Food and Nutrition Survey, aimed at setting the baseline for poverty, vulnerability and food insecurity in the country. The shift will allow the national department to pay for the survey, rather than each of the 9 provinces making separate payments to the Human Sciences Research Council
- Reallocation of flood repair funds from a municipality to provincial government. R60.7 million was erroneously allocated to the Joe Gqabi District Municipality in the Eastern Cape under the Municipal Disaster Recovery Grant (MDRG). As the damaged roads are provincial roads, the funds will be shifted to the Provincial Roads Maintenance Grant and ring-fenced to fund the repair of these roads
Changes to Health Conditional Grants
Additional funding for critical posts in health
R300 million is added to the Human Resources Capacitation Grant (that was introduced in the 2018 adjustment budget) to assist provinces to meet their salary obligations for posts that have been filled. To fund this, resources have been reprioritised from:
- R145 million from the NHI Indirect Grant (projected to underspend)
- R112 from programmes within the national Department of Health
- R43 million from HPV Vaccination Grant (R11 million was also declared as a saving from this grant). These reductions are possible because the target group for vaccination is changing from Grade 4 to Grade 5 girls and most of the grade 5 cohort in Q1 2020 will already have been vaccinated
Shift of indirect funds to direct
R289.2 million of the NHI Indirect Grant: Personal Services Component for the Health Professionals Contracting subcomponent will be shifted to a new direct conditional grant. Provinces already contract with medical professionals; this change will allow provinces to pay them directly rather than invoicing the national department.
R89.3 million was approved for roll-over in the NHI Indirect Grant, in the Health Facility Revitalisation Component to pay for medical equipment procured for hospitals in Limpopo.
Adjustments to Local governments Conditional Grants
Conversion of funds to ensure completion of projects
R19.5 million is converted from the Neighbourhood Development Partnership Grant’s direct component to the indirect component – This will allow national government to ensure completion of roads projects in Emfuleni Local Municipality and West Rand District Municipality.
Funds for Vaal River pollution remediation
Roll-over of funds for the indirect Regional Bulk Infrastructure Grant
R241.9 million roll-overs will be used for the emergency Vaal River System pollution remediation intervention. The Department of Water and Sanitation has also shifted funding from underspending projects to augment the Vaal remediation, so the total increase in funding in 2019/20 is R409.9 million (bringing the total allocation for projects in Emfuleni Local Municipality to R615.6 million this year). The MTBPS also announced there will be further reprioritisations in 2020/21.
Mr R Mackenzie (DA) sought clarity regarding the conditional grants process; where it originated from, where the decision took place as well as how the National Treasury monitored the money to ensure that it was not unnecessarily reallocated. He also wished to know what the criteria for the money allocation were.
Mr C Dugmore (ANC) sought clarity on the R25 million that had been allocated to Kannaland as part of the reallocation in the Regional Bulk Infrastructure Grant but was then taken away. He wanted to know what the background to the removal of the R25 million was. On page 23, there had been reference to the simplified structure of government and he sought clarity on whether there were any guidelines regarding cross-subsidisation.
Ms N Nkondlo (ANC) wanted an explanation regarding the data in which it was said that even those without official documentation were counted. She sought clarity as to the methods utilised to count people that were undocumented and if at any point where would one get that data in the provincial statistics. She sought further clarification regarding the topic of gender budgeting and whether or not the National Treasury were in the process of dealing with that. She explained that the National Treasury was the custodian of the fiscus and as such ought to lead by example and follow in that route.
Mr Steven Kenyon, Director: Intergovernmental Budget Processes, National Treasury, encouraged the Committee to make sure that they had a copy of the Division of Revenue Amendment Bill which was 300 pages. It would be a useful tool for monitoring and oversight. The rules for withholding or stopping allocations were set out in Section 18 and Section 19 of the Division of Revenue Act. Section 18 dealt with the withholding of funds which was dealt with by the Director-General of the Transferring Department, who was allowed to withhold or delay funds for up to 2 months after notifying the National Treasury and the Receiving Officers. There must be grounds for the withholding of funds. Section 19 dealt with the stopping of funds which was a much more serious offence and was only done by the National Treasury. The Director-General would first have to write to the National Treasury to explain the grounds infringed and then the National Treasury would write to the Receiving Officer to get their response. This was done to allow both sides to give an account.
The decision to implement the stopping of transferring funds was based on the performance monitoring as set out in the Act. There were requirements to submit performance monitoring reports to the Transferring Officer because they are the experts in their respective fields. The financial management report goes both to the Transferring Officer and National Treasury; along with the year-on monitoring. One of the grounds for stopping the allocation is non-compliance for the rules of the grounds.
Mr Kenyon explained that the data used to allocate funds are described in the explanatory memo to the Bill which is 50 pages in the middle of the Bill. The tables describe and provide the actual numbers in the case of the provincial equitable share which comes from the Department of Education, the Department of Health and StatsSA. It also sets out how that data was used.
There was a slight increase of R31 million to the Western Cape allocation, however, he felt that he did not need to emphasis that as most of the money had been used for the same purpose as originally intended. The change to the Kannaland allocation was due to the change in anticipated underspending and the delay in the implementation of the readiness study for that particular project, the same was true for the Beaufort-Wes reduction which had the same problem. The Department could not start spending until the implementation readiness study has been done and approved. Fortunately, the Act allowed enough flexibility to do those reallocations. He emphasised that the funds were indirect allocations and not transfers to the Municipal budget so there would not be a knock-on effect on the municipality, however, it was unsettling that the project planned would be delayed even though another project in the province would be allowed to move forward as a result on the fund reallocations.
He explained that there were no specific numbers from the National Treasury on the extent of the cross-subsidisation, because the potential for that was so different across many municipalities and as a result could not be confined to a single percentage or number. It was also a logbook prioritisation. He explained further that implicit in the Equitable Share Formula was the idea that the National Treasury did not transfer funds for Metros such as Cape Town for their institutional costs which included the Mayor’s and staff salaries, etcetera. The National Treasury expected that to be fully cross-subsidised in the Metros, however, that was implicit and not explicit. In places such as Laingsburg, the National Treasury would fund institutional costs because they could not necessarily raise those funds for themselves.
The Treasury was currently working with the Department of Planning, Monitoring and Evaluation (DPME) and the Department of Women on a project related to gender budgeting. He was unsure as to what needed to be kept confidential and therefore wanted to tread lightly when discussing gender budgeting, however, he could safely confirm that the National Treasury were in discussions on the method forward and were in the process of commissioning research to better understand the kind of gender implications in their baseline spending.
The Chairperson wanted to know as to whether or not Mr Kenyon was saying that he could not answer the question fully regarding gender budgeting within the National Treasury itself.
Mr Kenyon replied that the question of gender budgeting was a difficult one. Currently, there was no explicit gender-based budgeting. The recommendation had been that government developed it as an additional lens on the budget – work that was currently underway and was an interdepartmental exercise which meant that a certain number of negotiations between departments had to be agreed on. It was complex, as gender budgeting meant different things to different countries – it needed to be confirmed as to what gender budgeting meant to South Africa. He emphasised that what was currently being done, was the work to understand what the gender dynamics in the existing spending programs were, in order for the National Treasury and various departments to understand how changes to those spending patterns would have gender implications. The National Treasury was also delving into the urban and rural dynamics of the spending programs.
Mr Mackenzie stated that his question was with regard to the actual process and not particularly the actual bill. He explained that money would be given for the building of canals, however, no canals would be built – he wanted to know with regard to that, how the National Treasury monitored that situation and how one would report when such an incident occurred. He wanted to know what the Municipal Infrastructure Support Agent (MISA’s) role was in everything. He further informed the Committee that the CEO of the MISA had just been arrested. He wanted to know as to whether or not there were actual oversight visits to inspect that the work had been completed or if it was just a desktop exercise where reports were submitted.
Ms M Wenger (DA) agreed that while the structure of the provincial Equitable Share Formula had been provided on slide 21, the considerations were not mentioned – she sought clarity as to what the considerations were. Secondly, she wanted to know whether the age structure of the population and aging society were considered in the budgeting process as the general population succumbed to economic conundrums with aging.
Mr G Brinkhuis (Al Jama-ah) wanted to know what the risks were where money was wrongly allocated. He further sought clarity as to the risks associated with departments receiving the wrong allocation.
Mr Kenyon responded that where funds were wrongly allocated, if there were mistakes in that allocation in the Division of Revenue Amendment Bill, there were measures in place to allow for the correction. In the case of a gazetted municipal allocation, the Minister of Finance could re-gazette the correction after consulting the Municipalities. If there was too steep an allocation to the provinces, then it would be done via an Amendment Bill. Immediate communication would be done with the transferring Officers to notify them. In such a case, they would be able to communicate with them and if the funds were not spent, there was a requirement that the funds be paid back. If the funds were not paid back, there were mechanisms in place to offset those funds against future transfers. Ultimately, they would be able to either get the money back or get it back by subtracting it from future fund transfers.
It was a difficult task to monitor the funds being spent as there were over R100 billion in conditional grants paid to provinces and national officials could not be at each and every project oversight. There were over R40 billion in municipal conditional grant allocations that were transferred directly. The National Treasury relied primarily on monthly reporting systems and verifications that were done on top of that. Municipal cases were problematic; however, two things were done to make it more manageable, one of which was the reliance on Provincial CoGTA’s. Provincial CoGTA’s managed the oversight visits on behalf of National CoGTA and therefore monitored municipalities. He emphasised that it was not full proof by any means – especially where national and provincial departments were themselves compromised in their performance, making monitoring even more difficult.
Mr Kenyon clarified that the MISA’s role was one of support and therefore one would not find their name in the Division of Revenue Bill as they did not transfer funds or do anything other than provide advice and support. National Treasury were in the phased review of the provincial equitable share and as such were looking at different components at different stages in the time leading up to a rebalancing of the components. Substantial changes had been made in the education component regarding the data which was being used – which had significant allocation implications for provinces which was phased in over 3 years. The National Treasury had also moved from using census data for the age profile to using midyear population estimates which were more dynamic and updated every year.
He further explained that the broader considerations for the review were within the education component; which still did not have any differentiated funding that considered rural costs or the costs of different categories of learners at school which was something they were busy exploring at the moment. One of the frequent criticisms of the formula was that it did not have an explicit rural factor in it, something which became a big focus of the review. In the health component, the updating of the risk adjustment factors had a few problems in the way it was being done – it was static and not routinely updated. National Treasury was planning to work with the Department of Health in 2020 to tackle those issues, simultaneously tackling issues which closely with what the Department needed to do as part of their NHI (National Health Insurance) in terms of their capitation funding model.
Mr Kenyon explained that the poverty component was based on a very simple measure of poverty, but poverty had a lot of impact on provincial costs and costs drivers. The National Treasury wanted to look at whether they could come up with a poverty component that did a better job at reflecting those different cost drivers, especially in the social development spending space in provinces which was where one would find a lot of those services turn the aging population on provincial budgets. He emphasised that the National Treasury wanted to go more in depth in their research.
The Chairperson stated that the Ilima/Letsema Grant stated that the adjustment was R9.3 million, however, when one looked at the page 6 of the Bill, it showed a decrease of all projects in the Ilima/Letsema Grant. The Chairperson sought clarity on that. The Bill gave mention to the purpose being investment infrastructure to unlock agricultural production, the Chairperson wanted to know if those funds could assist with drought issues or only infrastructure specifically. Page 17 of the Bill showed a decrease in the adjustment of the electrification backlog. Approximately R250 million had been decreased and the Committee sought a reason as to why this was occurring, as Eskom was also before the Economic Development Committee where they had indicated that there was no electrification gazette for the whole of the Karoo area in the Western Cape. The Chairperson failed to understand the decrease in money – especially where thousands of people in the Karoo area and broader South Africa where not receiving electricity. This affected having basic services in those areas.
Mr Kenyon responded that there would be a very small allocation for the following year for the Integrated National Electrification Program around Eskom. There was an indirect grant for Laingsburg where a planning study would possibly be done. The National Treasury would be signing off on the allocations once they received it from the Department. Eskom together with the Department signed off on those allocations before they would submit it to the National Treasury. He emphasised that it depended largely on the type of grants issued as it was not a wall to wall licensing regime but rather whether it was an Eskom or municipal licensed area. The R250 million decreases were a result of the projected underspending – a result of the significant underspending over the last 2 years.
The Ilima/Letsema grant was one of the situations where money was taken out of a direct transfer and added to an indirect transfer. He clarified that page 7 of the Bill indicated the reductions on the direct transfers. He explained that because the National Treasury did not allocate per province in indirect grants in schedules, they would gazette it after the Bill was enacted. Page 62 in appendix 3 contained the draft gazette where one would find exactly the same amount per province being added to the new indirect Ilima/Letsema grant which was essentially just going to be a transfer to the HSRC to pay for the survey.
He explained that National Treasury were very much aware of the serious situation of regarding drought and appreciated the Western Cape Provincial Government allocating its own resources towards the drought alleviation. He explained that in last year’s Amendment Bill, there were substantial drought allocations across the country and a lot of the borehole and big spending projects were funded at that time. The disaster funding regime, under the Disaster Management Act set out the principle that firstly, the relevant level of government needed to reprioritise its own resources to try and address a disaster, however, if they could not manage within their own resources or needed additional funding, they could declare a state of disaster which would allow them to apply for additional funding from the National Disaster Management Centre through a range of disaster grants. The Eastern Cape was one such example that had gone that route in order to gain additional funding. There were also clauses in the Division of Revenue Act which allowed for the reprioritisation of existing grant allocations to deal with disaster situations but in the case of agriculture and agricultural infrastructure, some of the normal project grants could be drought related in any case because they dealt with water and supporting farmers which formed part of the core work of certain projects.
The Chairperson stated that she would take that into account but to her knowledge the provincial disaster that was declared had not yet expired, therefore, the gazette was still in place. The Chairperson concluded the meeting and stated that the Committee would go straight into the verbal submission which was meant to be their second meeting. She urged Mr Kenyon to stay as he would possibly be able to answer some of the issues brought up in the public submission.
Public Oral Submission
Mr Rademeyer thanked the Chairperson and the Committee for the opportunity. He explained that the Western Cape had been declared as the most performing province in South Africa by the Auditor–General. He expressed his fear that despite other provinces not performing well, they were receiving much higher allocations as opposed to the Western Cape that seemed to be doing so much with so little. As a taxpayer and resident of the Western Cape, he expressed his disappointment at the allocations year after year.
Provinces such as KwaZulu-Natal’s facts and figures were frightening – when looking at their budget in relation to the little work being done there as opposed to the Western Cape who was doing a sterling job with so little in comparison to their budget. He explained that the funding available for infrastructure and the allocation for the period 2016 – 2020 for Drakenstein as compared to the City of Mbombela which has very much the same type of budget, in the last financial year Mbombela received R330 million as opposed to Drakenstein’s R33 million. The Drakenstein was doing a sterling job but at the cost of them taking up loans to fund most of their projects which was to the detriment of the taxpayer. He emphasised that the National Treasury needed to look at those issues because someone should not be punished for doing a good job. The City of Mbombela would accumulate R1.367 billion for their infrastructure for the period 2016-2021, as opposed to Drakenstein’s R167 million – which amounted to less than 50% of Mbombela’s one-year allocation. He explained that if the Drakenstein could get a percentage of that allocation, they would be smiling and would be able to pay off their debt quicker.
He explained his shock that there was not a full house of Municipal Managers, Mayors, MMC’s for Finance, and CFO’s present at the meeting to fight for their fair share. He explained further that in a previous meeting with the officials of Human Settlement, he mentioned to them that high ranking officials not attending the meetings were a slap in the face of the system. He could not understand as to why nobody else was present to fight for every penny they could get.
Mr Rademeyer explained that R30 million had been spent on demolishing new houses and correcting bad building infrastructure, however, those were the things that they should not even have been talking about when Municipalities such as the Drakenstein and various others were battling to get their gap housing off the ground. Gap housing was the first entry level of any housing for a person that could actually pay for services. Those were the people they needed to get aboard to broaden the tax base so that the necessary cross-subsidisation could be done. He emphasised that those were the things that they needed to do and if they did not get people to do the entry level housing, then how would they go about it.
He explained that the purpose of owning a home was to generate a footprint for the future 25 years down the line where one could actually build something or send a child to university or take out a second bond. He explained that if one could take a 40 square metre house and enlarge it to double that that was money growing as an investment for the future. He explained that currently they were failing miserably to allow people to do that. He emphasised that nationally, gap housing was not getting off the ground which was a big problem and he hoped that the National Treasury would be able to help with that issue.
The Chairperson thanked Mr Rademeyer for his oral submission.
Mr Kenyon replied that he was excited as he did not often get those detailed submissions from the public. He stated that one of the changes the National Treasury made in this year’s Division of Revenue Act was the introduction of the new grant specifically for B-Municipalities. The Urban Settlements Development Grant was only for Metro’s and they had always said they wanted to have something for those secondary cities which had greater developmental potential; this led to the introduction of the Integrated Urban Development Grant this year. It is a grant available to secondary cities but on an application basis, with requirements needing to be met. He referred Members to pages 104-106 of the Division of Revenue Amendment Bill which prescribed the criteria. He explained that the Drakenstein had applied and met all the criteria; he further elaborated that within the grant there was an incentive component that rewarded good performance in a Municipality. The Drakenstein received an incentive reward of R12.8 million and Stellenbosch received an incentive reward of just over R10 million. They are the only two in the Western Cape. He emphasised that this was one such method of recognising good performance.
He emphasised that the National Treasury always emphasised in their medium-term budget policy statement in the budget review that Municipalities had a greater potential to borrow against future revenues and that a lot of infrastructure investment that Municipalities did could and should come from borrowing and through development charges. At the moment they were leaving a lot of money on the table that could be invested in municipal infrastructure. Over time they hoped that the Integrated Urban Development Grant would encourage secondary cities to blend/integrate their grant funding with their own revenue and borrowing.
He clarified that the allocation was based mainly on the formulas; which were available online and would serve as a better reference. He explained that it was population and poverty driven. The Drakenstein had 73 thousand households of which 42% were below the poverty threshold; this amounted to 30 714 households that were funded for free basic services to the equitable share. By contrast, Mbombela had 213 thousand households which was almost 3 times as many as Drakenstein, of which 59% were below the poverty threshold which amounted to 125 635 poor households that were funded through the formula. It was that difference between the 30 thousand and 124 thousand poor households in the Drakenstein and Mbombela respectively that drove the differences in allocations for those two Municipalities in the Division of Revenue Act. He, however, wanted to congratulate the Drakenstein’s efforts on the weighted score in which they were the top scorer in the country for the grant incentives. He emphasised that as long as Drakenstein was borrowing sustainably, it was a good thing.
Mr Rademeyer explained that Mbombela’s poverty was four times that of the Drakenstein, however, the allocation was 10 times that of the Drakenstein – that was something which needed to be addressed. He sought clarity on whether the Municipality had the authority to use the R12.8 million incentive grants received specifically for a certain project related to gap housing. There were contractors who were willing to come aboard and wanted to build that type of housing. He suggested that the Treasury ought to get the 150 thousand willing, able and capable retired engineers to perform oversight roles – that would not only ensure that monitoring was taking place but also that an excellent product would be delivered at the end of the day.
Mr Kenyon replied that the scale of the differences in the equitable share allocations did not surprise him at all. It was largely a result of the infrastructure backlog, there were a large number of households in the greater Mbombela area that had never had access to basic services whereas service backlogs in the Western Cape areas were much lower and confined mainly to informal areas. This was largely due to historical development patterns. He loved the idea of using the retired engineers. He also emphasised that the National Treasury published a whole lot of information; however, it had not always been user friendly, something they were currently trying to do. They were also moving into a more technologically advanced space where one would be able to access information based on where they were or what areas they wanted to get information on through an app or online.
Mr Brinkhuis wanted to know which municipalities qualified for the Integrated Urban Development Grant (IUDG) but did not apply and which municipalities applied for the IUDG but did not qualify.
Mr Kenyon stated that he could not say how many others would have qualified as the Department of Cooperative Governance were the ones who assessed the applications. Only applications received were assessed. It was publicised to the Municipalities along with the requirements; however, when they did it was not assessed by the National Treasury itself.
Ms Nkondlo stated that she wanted to know why the National Treasury encouraged borrowing as a method to indicate strength of Municipalities, especially where the Drakenstein’s liquidity situation was on the red to a point where the National Treasury with the Provincial Treasury was trying to reach some point of intervention. She wanted to know what the relationship between the borrowing and the liquidity was, as both were important factors when dealing with Drakenstein’s financial health.
Mr Kenyon explained that the Integrated Urban Development Grant was a new type of grant and was being done via an application bases. One of the issues they found was that Municipalities that performed well during the application progress and run-up could regress and run into crises. The grant structure made provision to deal with changes in performance. If the municipality did not continue to meet the eligibility requirement in the second year, it would be put onto a performance improvement plan to help it recover, however, if they continued to fail to meet the criteria, they could be returned to the MEG system if that was a more appropriate space for them.
The Chairperson stated that she wished to know how the formula regarding equitable share dealt with learners with special needs; and how it was being factored in regarding the education component.
Mr Kenyon replied that the Chairperson had to be very well informed to be asking such questions about Special Needs learners as it was one of the needs that were discussed in the year as part of the Equitable Share Formula review. Currently Special Needs learners were not counted as part of the PES formula determination; however, they were counted in the school age population. The historical reason for this was that in the past, Special Needs learners were counted in a different statistical system to that of the ordinary learners; therefore, ordinary learners were used as the data set. With the new data set, they had the option to incorporate special need learners into the system and they intended to do so, however, they would delay it until they were able to incorporate other categories as well, such as the schools and the locations to be able to create a proper structure of integration for allocation purposes.
The Chairperson thanked the Committee for their attendance with a special thank you to the Permanent delegate in the NCOP, Mr Edward Zoyisile Njadu (ANC; Western Cape) for his attendance, as well as to Mr Rademeyer and PMG.
The meeting was adjourned.
No related documents
Baartman, Ms DM
Mackenzie, Mr R
Njadu, Mr EJ
Nkondlo, Ms ND
Wenger, Ms MM
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