The Budget Committee was briefed by National Treasury on the Division of Revenue Bill [B3-2020]. Members were advised on how the Bill was already responding to the impact of Covid19, with R466 million transferred to provincial health departments for the purchase of Personal Protective Equipment. The total value of provincial conditional grants had increased from R107 billion in 2019/20, to R123 billion in 2022/23, while local government conditional grants had also increased, from R52.1 billion in 2019/20, to R56.3 billion in 2022/23. An estimated R1.5 billion in 2019/20 Municipal Infrastructure Grant (MIG) funds had been redirected to urgent water supply projects, and the education and health infrastructure grant business plans were also being revised to prioritise the COVID19 response.
Of concern to Members was the reduction in the wage bill, the unending reviews of formulas, and uncertainty over whether the province was going to get additional grants. The Committee agreed to Members reserving their right to comment on the Bill during the negotiation mandate stage, and resolved to organise a workshop at which National Treasury could teach them about the equitable share formula. Responding to a question as to why there had been a reduction in the equitable share for the Western Cape, Treasury advised that actually there had been an increase of 7.2%, which was way above other provinces.
National Treasury: Division of Revenue Bill [B 3–2020] (NCOP)
Ms Wendy Fanoe, Chief Director: Intergovernmental Policy and Planning, National Treasury, started the presentation by informing the Committee on how the Division of Revenue Act (DoRA) was already responding to Covid19. Disaster provisions in the 2019 DoRA had been activated and disaster relief grants of R466 million had been transferred to provincial health departments for the purchase of Personal Protective Equipment (PPE). Reallocations in terms of section 20(6), which allowed exiting grants to be reallocated for disaster alleviation, had been done, and R306 million in the indirect Regional Bulk Infrastructure Grant (RBIG) had been reallocated for interim water supply measures in the form of tanks.
The 2019/20 Urban Settlements Development Grant (USDG) funds, which were not already contractually committed to projects, had been reallocated to allow cities to fund increased services in informal settlements and vulnerable communities, and adjustments had been made to conditional grant business plans. An estimated R1.5 billion in 2019/20 Municipal Infrastructure Grant (MIG) funds had been redirected to urgent water supply projects, and the education and health infrastructure grant business plans were also being revised to prioritise the COVID19 response.
The Committee was advised that enacting the 2020 DoRA would enable the use of similar provisions in 2020/21 to provide further assistance. National Treasury was also proposing to make small changes to some conditional grant frameworks before they were gazetted in order to respond better to the scale of this unprecedented situation.
On managing the impact of conditional grant reductions, Ms Fanoe said conditional grant funds were still in line with allocations over the last decade after taking account of inflation, but unlike equitable shares, grants had not kept pace with population growth. To manage the impact on services, the amount reduced from each grant considered past spending and performance, whether they were use to fund salaries, medicines and food, and whether there had been significant real growth in allocations in recent years.
Larger reductions had also been made to grants to urban municipalities, which have more capacity to offset the effect of cuts by increasing their own revenue investments.
Most of the Bill’s clauses remained the same from one year to the next, but the changes in the 2020 Bill include:
- Built Environment Performance Plan (BEPP) exemptions for metropolitan municipalities;
- Provision for possible municipal boundary changes;
- Improving grant administration - responsibilities for national departments, provinces and municipalities
Mr Marumo Maake, Director: Provincial Budget Analysis. National Treasury, said the provincial equitable share formula was updated to reflect changes in the demand for services. Additions to the formula included reprioritised funds over the Medium Term Expenditure Framework (MTEF) for the sanitary dignity programme (R652 million); gender-based violence support (R316 million); and social worker support (R398 million). The review of the formula in 2020 would include work on the education, health and poverty components, and on the cost of rural services.
Changes to provincial conditional grants included Early Childhood Development (ECD), where R1.4 billion had been added to the ECD grant to improve the per child/per day subsidy from R15 in 2019/20, to R18.57 by 2022/23, and a small expansion of health services grants. The Department of Health and National Treasury would review the health conditional grant system to ensure alignment to the National Health Insurance (NHI) scheme, and improvements in delivery. Two related grants that funded medical internships, community service and the training of specialists had been merged to form the statutory human resources, training and development grant.
Mr Maake said that to promote an improvement in health services in rural provinces, development components had been added to two conditional grants – the national tertiary services grant and the statutory human resources, training and development grant. The total value of provincial conditional grants would increase from R107 billion in 2019/20, to R123 billion in 2022/23.
Ms Pretty Muthaphuli, National Treasury, presenting on the local government equitable share formula, pointed out that household data had been updated and showed an increase from 10.4 million poor households in 2020/21, to 10.8 million in 2022/23. The cost of services was updated for each year, and uncertainty about electricity price increases over the MTEF posed a risk.
There were changes to local government conditional grants, and these included informal settlements upgrading components. These components would remain in place for 2020/21 in the USDG and the HSDG before becoming separate grants in 2021/22C. Cities and provinces were required to identify well-located settlements which should be prioritised for upgrading to serviced sites through the MIG. Specialized waste vehicles may be purchased through this grant on a transversal contract, but only if there were expanding services and additional cities join through the Integrated Urban Development Grant (IUDG).
R750 million had been reprioritised towards regional bulk infrastructure grant projects to rehabilitate bulk sanitation infrastructure, as part of river system rehabilitation. It was made clear that there was an increase in local government conditional grants, from R52.1 billion in 2019/20, to R56.3 billion in 2022/23.
Ms W Philander (DA) asked the National Treasury team to elaborate on the possible grant changes which would be influenced by Covid19. Who was going to be affected by the reduction in the wage bill? Were there any other grants that should be expected?
Ms Fanoe replied that grant changes would be done in order to cater for departments such as health, which needed more quarantine sites and protective clothing; education, which needed to be equipped with sanitisers and protective clothing ll before learners resumed their studies; and the transport sector, which also needed sanitisers.
The reduction of the wage bill would affect all departments, and would be applicable to all permanent staff.
On whether to expect another grant, she said she would rather use the existing grants for what was needed now, as could not talk about a grant they were yet to receive. However, she was expecting other grants to come as soon as the Appropriation Bill had been passed.
Ms M Wenger (DA) asked for the reason behind the reduction in the Western Cape’s equitable share. Why was the formula for these shares always under review?
Mr Maake responded that there had been no reduction in the equitable shares for the Western Cape, and that actually there was an increase of 7.2%, which was way above other provinces.
Ms Fanoe explained why formulas were always under review, saying there were yearly updates and a structural review. These were ongoing, and there was not a definite time as to when they would come to an end, as the system took time to improve. They could not stop these reviews, as the National Treasury wanted to create a sustainable system that would give the best results.
Consideration of written submissions on DoRA
Ms Waseemah Kamish-Achmat, Procedural Officer, told the Committee that due to COVID19, they were struggling to get public comments on the Bill, although they had done all they could to gather public opinion. They had used all the virtual platforms to get written submissions from the public.
Ms Philander asked how effective WhatsApp was in gaining public participation.
Ms Kamish-Achmat responded that they had not received any submissions via WhatsApp.
The Chairperson told Members that if they had any suggestion on how best they could get information from the public, it would be welcome.
Mr A van der Westhuizen (DA) asked if the Committee could include the fact that the numbers in the Bill would change due to COVID19, and make it crystal clear that these were interim figures. He also asked the Committee to reserve its right to comment on the Bill during the negotiating mandate stage.
The Chairperson agreed to this proposal, and confirmed that they could include the issue of interim figures in the report. She asked Ms Kamish-Achmat to assist the Committee with the proper wording in the report.
Ms Philander seconded the motion for reserving comment on the Bill, and it was adopted by the Committee.
The Committee considered and adopted the draft 2019/20 Committee annual activities report, and the draft Committee minutes of the meeting held on 19 March.
The Committee resolved that it would arrange for a workshop with the National Treasury so that Members could be taught about the formulas they were using.
The meeting was adjourned.
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