The Western Cape Provincial Parliament (WCPP) Standing Budget Committee convened to hear and consider a briefing from National Treasury on the Division of Revenue Amendment (DORA) Bill [B9-2020], and adopt a negotiating mandate report for the Bill. This was a virtual meeting. The presentation outlined the impact of the COVID-19 pandemic on provinces, which was particularly reflected in the provision of services and reprioritisations. It described the different ways that the COVID-19 response would be funded through increasing the deficit and reprioritising resources.
It indicated some of the changes in conditional grants, where they were revised downwards by R3.961 billion, and the repurposing within the grants that amounted to R7.379 billion nationally. The total change to the Western Cape provincial grant allocations amounted to a total downward revision of R113.123 million. The presentation also outlined the R20 billion package made available by the Bill for local government. The equitable share adjustment for the Western Cape was indicated in the presentation as R721.703 million.
Members engaged with the Bill in great detail. They asked the delegation for clarity on the meanings of "reprioritisation" and "repurposing," and the difference between direct and indirect conditional grants. Some commented that reprioritisation essentially referred to budget cuts. They also raised a concern on the management of these funds related to COVID-19 in provinces and municipalities that had a history of under-spending and underperforming. They asked about the status of the discussion with the South African Local Government Association (SALGA) on the implementation of the 6.25% wage increase for local government in light of the current economic hardship. They asked the delegation for guidelines and advice for municipalities regarding revenue collection in light of the drop in revenue for local government.
In considering the adoption of the Negotiating Mandate Report on the Bill, Members recorded a majority vote not to support the Bill, mainly because of the net decreases to the Western Cape provincial budget. The Chairperson allowed a record of the minority vote to support the Bill, on the grounds that it left sufficient room for provinces to continue lobbying national government.
The Chairperson introduced the meeting and clarified the background of the Division of Revenue Amendment (DORA) Bill’s timeframes for the Committee Members. She considered the deadlines unreasonable because the Western Cape Provincial Parliament (WCPP) had had to advertise the fact that there would be public hearings on the DORA Bill before it was even referred. If the WCPP had waited for the Bill to be referred, it would not have been able to put out the advertisement on public hearings. The National Council of Provinces (NCOP) required the final mandate from the WCPP on the Bill by 21 July. In order to get the final mandate, the WCPP was sitting on Monday to decide on its final mandate. In order to have a final mandate, it would need a negotiating mandate which was due 17 July 2020. She said that at the last meeting, she had proposed that the negotiating mandate not be an item that shared its time with the briefing and the public hearings, but unfortunately with the NCOP’s tight deadlines, this had not been possible.
COVID-19 Response: Division of Revenue Amendment Bill 2020
Mr Steven Kenyon, Director: Local Government and Budget Framework, National Treasury (NT), said National Treasury was appreciative of the WCPP for its speedy timing in processing this Bill, which was very appropriate given the urgency of the need for the funding contained in the Bill. He said Ms Zethu Ncube, National Treasury Deputy Director: Local Government and Budget Framework, who had worked on the DORA Bill for years, would take the Committee through the first part of the presentation before the budget analyst for the Western Cape would take the Committee through the provincial changes. Thereafter, Ms Pretty Langa: Budget Analyst in the Western Cape responsible for monitoring conditional grants, would present the local government budget changes to the Committee.
Ms Ncube outlined the timeline of the Division of Revenue-related response to COVID-19 since the COVID-19 outbreak was declared a national disaster. The presentation also gave the Committee a picture of just how severe the COVID-19 impact was on the national finances, as seen through the gross domestic product (GDP), the national revenue, the national expenditure and the debt service costs. In light of the national finances, the presentation showed how the COVID-19 response was being funded, indicating that the increased government spending to respond to the pandemic was funded in part by increasing the deficit and in part by reprioritising resources. The presentation described the impact of the COVID-19 pandemic on provinces, as seen through service provision and the reprioritisation of funds in each province.
Ms Ncube stressed that the Department was not taking money away from the provinces, but rather the provinces were reprioritising their budgets internally to assist health services and social services. She showed the impact of the COVID-19 pandemic on local government as seen through the drop in revenue for metros and municipalities, and the spending pressures resulting from the pandemic. She gave an overview on how the division of revenue was responding to the COVID-19 pandemic, including an outline of the challenge and the COVID-19 response’s approach. The presentation also outlined the changes in the clauses and schedules in the Amendment Bill, particularly with the allocations for the current year.
She went into detail on the changes in the conditional grants. The changes to the health sector grants included an additional R2.8 billion added to the COVID-19 component of the HIV, tuberculosis (TB), malaria and community outreach grant, as well as reprioritisation of funds within this grant, the health facilities revitalisation grant, and the national tertiary services grant. The reprioritisation within the education grant included amounts allocated to support sanitisation and sanitation, and amounts to support catch-up activities.
The presentation also outlined changes to five other provincial grants, and tabulated a summary of changes to provincial grants for direct conditional grants within the categories of Agriculture, Land Reform and Rural Development; Basic Education; Health; Human Settlements; Public Works and Infrastructure; Social Development; Sports, Arts and Culture; and Transport. Within the direct conditional grants, the presentation indicated a downward revision of about R3.961 billion and an amount repurposed within the grants of about R7.379 billion. It tabulated a summary of changes to provincial grants for indirect conditional grants within the categories of Agriculture, Land Reform and Rural Development; Basic Education; and Health. Within indirect conditional grants, the revision of the budget amounted to R202 million, and an amount repurposed within the grants of about R200 million. A summary of changes to the Western Cape provincial grant allocations showed that the conditional grants’ impact totalled a downward revision of R113.123 million.
The presentation referred to the R20 billion package made available by the DORA Bill for local government. R11 billion had been added to the local governments’ equitable share, and an additional R9 billion was available within the conditional grants. The additions to the local government equitable share provided relief to stretched municipal finances to support their COVID-19 response. Direct conditional grants had been revised downwards by R3.599 billion, and indirect conditional grants had been revised downwards by R1.008 billion, bringing the total local government conditional grants’ downward revision to R4.607 billion suspended in the 2021 financial year.
The amount repurposed within the direct conditional grants for local government amounted to R9.034 billion, and within the indirect conditional grants it amounted to R409m. The local government equitable share allocation for the Western Cape 2020 medium term expenditure framework (MTEF) per municipality amounted to R721.703 million, to take the adjusted allocation for 2020/21 to a total of R6.410 billion.
Ms N Nkondlo (ANC) appreciated that some of the slides in the presentation appropriately focused on the Western Cape’s specific context. She was interested in some of the out of the norm reprioritisation or budget allocation principles that would apply to the COVID-19 situation. She asked for clarity on the criteria being used to determine what was termed ‘repurposing’ or ‘reprioritising’ of funds in both the provinces and municipalities, so that she could better understand some of the amounts presented in these various categories. The NT had said that it had taken all the necessary considerations to ensure that the impact was minimal, and she wanted clarity on this and also about who might determine what counted as ‘minimal impact.’
On the revenue of municipalities, she noted that the presentation indicated that some municipalities had seen a drop in revenue, and that others were experiencing this drop even after having been previously in distress, and asked which municipalities were being referred to in these respects, particularly in the Western Cape. She asked whether the money being reprioritised for health and the community outreach grant covered some of the pressures on old health facility infrastructure and school infrastructure that had been on waiting lists for new construction, refurbishing or maintenance.
She asked for clarity on the differentiation between direct and indirect conditional grants. On the R1 billion infrastructure grant for the City of Cape Town (CoCT), she asked that the delegation explain what the grant was for and what reasons were provided to the NT on why this grant was not used by the CoCT. Were these reasons deemed sufficient in light of the concerns raised by both the Portfolio Committee and Select Committee on how the government dealt with the unintended consequence of punishing communities that needed these grants by having them repurposed because of technical and administrative reasons?
Mr R Mackenzie (DA) asked about the R2.8 billion in additional funds added to the COVID-19 component of HIV, TB, malaria and community outreach, which included the financing of the Cuban medical personnel. In particular, he asked what this amount covered and where this amount was in the big book. On the exemption from implementing the 2020/21 cost of living adjustment of 6.25%, the presentation indicated that NT had written to SALGA to formally propose this, and he wanted to know the status of this process.
On the spending reviews which National Treasury was going to undertake, he asked when and where these would be undertaken and what methodologies would be used. On the detailed budget on the NT’s website, he said there was an indication of a budget adjustment of almost R300 million for air defence, and asked what this was exactly for. He was concerned that provinces were being short-changed money, particularly regarding the funds needed to hire more people at the Brackengate temporary COVID-19 hospital in Cape Town.
Mr C Dugmore (ANC) referred to the debate currently under way regarding a former treasury official and the views of the Reserve Bank governor, and said that NT was likely to be aware of this. In light of this, he asked for an explanation from NT on what the source of the additional funding was, and what its view was towards quantitative easing during the COVID-19 pandemic. He asked for clarity on the actual new money made available to the Western Cape through the process of the Bill at hand.
On the situation that local governments found themselves in, he echoed Ms Nkondlo’s concerns and asked which municipalities in the Western Cape the National Treasury viewed as requiring support. What was the NT’s view on local governments’ budgets on, for example, the tariffs set by municipalities for unoccupied vacant private land? Did it have a guideline on the approach that local municipalities should be adopting? He gave the example of Knysna municipality, where tariffs set on unoccupied vacant land compared to the neighbours of George and Plettenburg Bay were substantially lower, and asked if Treasury’s saw this as a possible way of generating extra revenue. He also raised a concern that the allocations for those impacted by COVID-19 were not explicitly including those in the tourism sector and artists in the cultural sector, highlighting that these sectors were likely to be among the last to open.
Ms N Makamba-Botya (EFF) asked what had guided the budget allocation to municipalities. She gave examples of municipalities who had been declared to be under-spending by the Auditor General (AG). What was the correlation of the budget allocation to such indications?
National Treasury’s response
Mr Kenyon answered the question about the out of the norm reprioritisation principle in this budget. He said it was important to highlight how unusual the COVID-19 adjustment budget was, as the country was in a much more severe economic situation than had been presented before the pandemic, and there was a much greater need for additional public spending on something unforeseen. He said the pandemic situation was temporary, so what had been presented was not a change over the medium term. In the medium-term budget policy statement, the Treasury would also have to present a series of budget changes aimed at ensuring that the country’s future path was fiscally sustainable. This current budget adjustment dealt with an emergency and a change in government priorities, rather than taking away allocations.
Particularly within the conditional grants, the Treasury had repurposed funds, which meant that some of the allocated funds in a grant would be used as part of the COVID-19 response. He gave the example of the municipal infrastructure grant (MIG), saying that 10% of it had been repurposed to fund the provision of sanitisation for public transport, including handwashing facilities, hand sanitisers, cleaning public transport spaces etc., to ensure that public transport was as safe as possible during this pandemic. This example was something that was not usually in the mandate of the MIG. Repurposing meant that the same amount of money would be transferred to that municipality in that same grant, but the grant would be subjected to extra grant rules in the gazette frameworks, allowing the grant to be used for additional COVID-19 related purposes and the normal purpose.
Mr Kenyon answered Mr Dugmore and Ms Makamba-Botya on the questions about the Western Cape municipalities being referred to, and said it would not be appropriate to name specific municipalities. This was because all municipalities in the country had been affected, and the extent of the knock on revenue was still to be determined in the final analysis. The drop in revenue for municipalities was not surprising, given the closure of various offices and workspaces under the Level 5 lockdown and the financial pressures of households who may not have paid their municipal bills.
On the advice from NT to municipalities on revenue collection, he said the advice was to progressively tighten their revenue control. They needed to be patient with customers and consider offering accommodation for late payments within their existing policy, but to still collect those revenues. Treasury hoped that some of those revenues that had not been collected would still be collected. He highlighted that the final impact -- how much of this drop in revenue was permanent, and how much was a temporary issue -- was still to be determined.
On the long-standing projects in health infrastructure, Mr Kenyon explained that reprioritisation meant that there were some infrastructure projects in roads, school and health that would be delayed for a year because of this unprecedented crisis. The delays in plans were part of the impact of COVID-19 for everyone, including individuals and government, but ensuring that there were beds available for ward capacity in hospitals, for example, was the right priority to shift to right now in this pandemic.
On the difference between direct and indirect grants, he explained that direct grants were those where Treasury transferred the cash to municipalities and they spent it, and indirect grants were grants where the national government spent the money on behalf of municipalities. He gave the example of the Integrated National Electrification Programme (INEP) Eskom grant, where the electrification was done by Eskom on behalf of municipalities.
He said the reduction to the Public Network Grant in the City of Cape Town was for the extension of the MyCiti network, which was funded by just over R1 billion. Because of a number of problems, both technical and within the municipality, there had been delays in that project, and NT had engaged with the CoCT and had established that it would not be able to spend that amount in the 2020/21 financial year. National Treasury had an agreement with the CoCT through that engagement that it would be better to declare that amount as part of the savings, and fund it in a future round of the budget.
In response to Mr Mackenzie, he said that the breakdown of the COVID-19 component was available on page 60 of the DORA Bill, which indicated that the Western Cape’s allocation was R588.928 million. Of the R3.450 billion total allocation in the COVID-19 component, Cuban personnel had been allocated R283 million for their salary costs.
Mr Mackenzie clarified that his question was on the determined formula used for the allocation of funding to provinces for the COVID-19 component.
Mr Kenyon responded that 70% of the allocations were determined based on the population size of those dependent on public health services, plus 20% of the insured population, and the other 30% of the allocations was based on the case load from the middle of June. Since part of the formula was based on changing data regarding the disease burden, NT may have to add more money to other provinces in the next adjustment budget in October.
On the status of the engagement where National Treasury had suggested to SALGA an exemption from implementing the 2020/21 cost of living adjustment of 6.25%, he emphasised that NT was not a member of the South African Local Government bargaining council, and was thus not a party to the wage agreement. SALGA was the employer representative. He said that in Treasury’s engagements with municipalities, as part of preparing for this adjustment budget, a lot of municipalities had said that they were trying to keep tariff increases as low as possible and would like to keep tariff increases in line with inflation, which seemed to be coming down to around 3% . Even so, municipalities were faced with a 6.25% wage increase, and wages in general accounted for almost a third of municipal expenditure. If wages were going up by 6.25%, this would put a lot of output pressure on municipal budgets and tariffs, particularly at a time where revenue collection was uncertain. This wage increase had been cited to the NT as a cause of pressure in the system.
He said NT had looked at the bargaining agreements and verified that it was in fact 6.25% that was binding, and that there was a section 11 provision for exemptions to be granted through a specified mechanism, including exemptions for ‘unexpected economic hardship.’ In light of the fact that the current economic downturn was unprecedented in the past 25 years, NT had written to SALGA to suggest that it pursue this exemption in the local government bargaining council. SALGA had suggested this, and so it was now in the bargaining council. National Treasury had been asked to come and present to the bargaining council to provide some of the relevant information, and this was as far an update as Treasury could provide at this time. He emphasised that it was a bargaining council decision as to whether the exemption was applied or not.
On the spending reviews, Mr Kenyon responded that Treasury had established methodologies and that some of the past spending reviews conducted by NT were available on the Government Technical Advisory Centre website. These expenditure reviews could be quite time-consuming, so NT was looking at mini- or faster versions to respond to the time pressures. It would be able to give definitive details on these spending reviews at a later stage -- perhaps at the next budget presentation, or the medium-term budget policy statement presentation.
He could not answer the questions on the Defence Force spending, as this was national spending that was not really part of the Division of Revenue Bill He was not familiar with the details, and no one in the delegation worked with the Defence budget.
On the sources of additional funding, Mr Kenyon said that the budget presented was largely funded through reprioritisations. There was also a net increase in government spending beyond the expenditure ceiling set in February 2020, but that was funded through borrowing from the market and from multi-lateral finance institutions.
On the new money to the Western Cape, he responded that this would include the R552.220 million adjustment for the COVID-19 component.
He found the question from Mr Dugmore relating to rating unoccupied land fascinating, and would characterise it as being both about municipal revenues and spatial development in centres. He clarified, however, that the Municipal Property Rates Act was the domain of the Minister of Cooperative Governance and Traditional Affairs, and not the Minister of Finance, so the Treasury would not be issuing guidance on property rates.
On the compensation of artists and those in the tourism sector, Mr Kenyon said that Treasury highlighted the compensation for sports persons in the DORA Bill because there was a Sports Mass Participation Grant that already paid the salary costs in the sports sector, and this had been broadened in the adjustment budget. This grant for sports persons was only a part of the R150 million that the Minister of Sports, Arts and Culture had announced as a broad relief package. The support for artists was within the national budget, and not part of this Bill, Similarly, with tourism, there was an allocation for tourism relief in the national department. In individual provinces there may also be additional relief for sports persons, artists and the tourism sector.
On the question regarding under-spending in municipalities, he responded that in short, the budget allocations were not linked to municipalities’ under-spending. Treasury had taken into consideration that even those municipalities that had underperformed still had genuine spending pressures, and this relief needed to be provided across the board so that every municipality benefited. Because this was an emergency situation, Treasury had avoided introducing new and complex methodologies, rules and systems that could cause a lot of confusion and conflict in the system, and had opted to use existing channels such as the local government equitable share, and allocation formulas that were well understood and already approved by Parliament.
Ms Nkondlo commented that as a member of an oversight body, she was concerned about municipalities with a history of under-spending in the context of reprioritisations and repurposing. She raised a concern on the indication in the presentation that funds would be given to municipalities, and the municipalities would determine how best to use the funds to respond to local pressures. She said that in light of the AG’s report on the performance of municipalities, she was concerned that outside of the general frameworks, NT was leaving it open to municipalities to decide how best to use the funds. She asked for clarity on whether Treasury was saying that it was only 10% of these grants that were being repurposed towards the spending on the COVID-19 pandemic.
Mr L Mvimbi (ANC) asked about the rearrangement of funding for provincial governments. He noted that most of the presentation spoke to the guidelines that Treasury had used for the reallocations. He asked whether it would still be at the discretion of the province to make the final determination on how a province would spend the repurposed funding. Media reports had been showing outcries from other provinces, saying that funding had not been forthcoming. He asked that the delegation clarify whether some of this funding had been made available to provinces, as had been alleged. He also asked that the delegation clarify how far Treasury was in finalising the formula for equitable shares.
Mr Dugmore asked again that the delegation clarify the specific municipalities in the Western Cape referred to regarding revenue drops and financial distress, as he had some connectivity issues.
Response to follow-up questions
In response to Mr Dugmore, Mr Kenyon repeated again that he could not provide the names of specific municipalities because there had been a lot of uncertainty about the exact revenue implications for each municipality, because a lot of that revenue may be recoverable. Municipalities that were in financial difficulties at the moment might not be in financial difficulties in the longer term and so it was not prudent for NT to express a view that named municipalities that were in financial distress. The Provincial Treasury present at the meeting may provide a more accurate view. He highlighted that all municipalities had been negatively affected and municipalities that were in trouble before were worse off now.
Mr Anthony Phillips, Acting Deputy Director General: Fiscal and Economic Services, Western Cape Provincial Treasury, responded that he would align with Mr Kenyon’s response, given that the Provincial Treasury (PT) did not have a full cost estimate. There were quite a few municipalities to list, and the PT could share a list of where it was currently after three months with the Committee. When the PT had monitored the cost-coverage ratio, the current ratio and the liquidity ratio, a number of municipalities seemed to have an issue either within the liquidity ratio or the cost-coverage ratio. He stressed that it was not a static point and at this point in time -- it was still a moving target.
The Chairperson said that the working document on the list of municipalities that may be experiencing financial difficulties in the Western Cape could be added to the Standing Committee’s resolutions.
In response to Ms Nkondlo, Mr Kenyon said that the broader point around the reprioritisation was noted. He clarified that the amount that was repurposed within each grant was different, and not necessarily 10%. Within the municipal infrastructure grant (MIG), for example, there was 10% for the sanitisation of public transport, and another 10% for urgent repairs to infrastructure. Usually the latter would cross the line between maintenance and new investments and so the MIG would not allow this, but in this case 10% was allowed. There were also funds that Treasury was expecting municipalities to reprioritise towards urgent water and sanitation projects, which were not the planned projects.
The percentage repurposed in the MIG was more than 10%, and the percentage across grants was tailored to each grant individually after consultations with each sector department. The same was true in the provincial conditional grants, as per the presentation’s indications. Treasury had tried to be as enabling as possible in the grant frameworks because at this stage, the impact of COVID-19 was uncertain. On the other hand, he shared the concern raised by Ms Nkondlo on how some municipalities would use those funds. In this regard, he mentioned the Minister of Finance’s warning on the misuse of funds, and the call to the public and legislatures to monitor the use of funds closely. All of these municipal budgets were public documents and publicly available, and the Division of Revenue Bill hoped to achieve this transparency in how funds were used and who benefited.
The Chairperson commented that ‘reprioritisation’ was a fancy English word, because when the R20 billion was announced across provinces, it had seemed as though this amount would constitute additional funding. No one had been informed initially that this R20 billion was money that provinces would have to find themselves from their own budgets. As the process went along, it later became clear that actually, instead of increasing the equitable share, not only were provinces getting a R0 adjustment, but they had to go and find the money from their planned programmes and take it to use for COVID-19 purposes. She was concerned that in reality, programmes that local government would have implemented could not be implemented because that money had to be used for COVID-19, irrespective of the money that had already been used. The President had initially announced that local government would get R20bn, without making it clear that R9 billion of that R20 billion would have to be money that provinces sourced from their own budgets. The Western Cape province, specifically from that R11 billion, had received only R721.7m for local government through the equitable share.
The Chairperson went through some of the indications in the presentation that she found to be concerning. She said that within grant allocations in the Western Cape, only two had increased. The one was the grant allocation for drought relief, which was R25 million, and this amount was wholly inadequate for drought relief in the Western Cape, although any money was money, and the province was happy to receive it. In comparison, for example, the Eastern Cape had received R35m for drought relief.
The second grant allocation that had increased in the Western Cape was the grant for health, which had been adjusted upward by R552.220 million. On the health grant allocation’s breakdown, she said her understanding was that the national government was bringing in Cuban doctors for all the provinces, and would pay for provinces rather than having the provinces foot that bill. However, of the R552m in the HIV, TB, malaria and community outreach grant component, which was a conditional allocation, R283 million had been allocated to the Cuban personnel salary costs, which she said was money that could have gone towards appointing doctors and nurses in the Western Cape and other provinces, who may or may not be unemployed.
She was going to propose that the question about the Defence Force budget went into the Committee’s resolution, saying that although this was not the adjustment appropriation budget, the two spoke to each other and should be read in conjunction. She said that under the defence vote in programme 4 on page 9 of the Bill, there was just one line for R239 million for air defence. It did not specify the programme, and she could not imagine what the air defence would have needed between the beginning of this year and now which would justify such a big increase, unless this was to go and fetch the Cuban doctors.
The Chairperson was concerned that the other grant allocations were all decreases. The Education Infrastructure Grant was decreasing by R159 million, and this was irrespective of the money that the Department of Basic Education (DBE) had already used in its infrastructure grant for COVID-19 purposes. The Provincial Roads Maintenance grant was decreasing by R161 million, which constituted a cut of almost 20%; the Comprehensive Agricultural Support Programme was decreasing by R21 million, which constituted a cut of approximately 20%; the Ilima-Letsema Grant was decreasing by R9 million, which constituted a cut of approximately 18%; the HIV and AIDS in the Basic Education vote to the Western Cape was decreasing by R4 million, which constituted a cut of approximately 20-25%; and the Basic Education Maths, Science and Technology Grant was decreasing by R5 million, which constituted a cut of approximately 14%.
She added that the Human Settlements grants both got a cut, and the Title Deeds Restoration Grant specifically was decreasing by approximately two thirds; the Community Library Services Grant was decreasing by R34 million; and the Mass Participation and Sports Development Grant was decreasing by R22 million. She emphasised that the cuts to the grants were quite sizeable. The total grant increases to the Western Cape province amounted to approximately R577 milliom, and the grant decreases amounted to approximately R634 million, so the Western Cape was effectively getting a huge cut of approximately R57 million, irrespective of the fact that it would have to “reprioritize” funds within its own budget. It seemed to her that “reprioritise” was simply a very nice English word for essentially cutting the province’s budget.
There was a long list of local government cuts that she had noted, and only three local government increases that she had picked up in the whole DORA Bill amounting to approximately a R30 million increase in grant allocations to local government. All the other grants that were being cut for local government in the Western Cape municipalities amounted to R314.2 million, which was a lot. Even in the presentation she saw at the National Assembly (NA) and the NCOP, the Financial and Fiscal Commission (FFC) had also indicated that there did not seem to be criteria for how the reprioritisation or the cutting of the grants was approached.
On the unallocated grants, the Chairperson referred to pages 62 and 64 of the Bill, and asked for clarity on these amounts. There was unallocated grant funding in the School Infrastructure Backlog Grant and the National Health Insurance Grant, making up three components, and the total amount of that unallocated grant funding was approximately R1 billion. She asked what this unallocated amount was for, how it got allocated, why there was an unallocated amount, and what that amount was essentially waiting for.
On the health aspect, she reminded Members that when the President was at the CTICC for the extended Cabinet meeting in the Western Cape, he had indicated that costs would not be an issue, but it was clear that costs were an issue because provinces were now directly taking cuts from their programmes, whereas the initial expectation was that money would come from national government. She also asked for clarity on whether the money that was being given through the increase in the equitable share to the other provinces and to national government, was coming at all from the international loan agreements that the national government said it was going to consider with the International Monetary Fund (IMF), the World Bank and the BRICS bank etc..
Mr Kenyon responded to Mr Mvimbi’s question on the timing of the transfers, and said that what the Treasury was tabling today was an adjustment budget, and the changes therein could legally take effect only once both Houses of Parliament had voted on the Bill and the President had signed it into law. There was an existing budget, and because so much of what Treasury was presenting was the reprioritisation of funds, provinces and municipalities did not necessarily have to wait before the Bill was passed to spend some of the funds on COVID-19 purposes. Most provinces and municipalities were using their existing allocations to provide these COVID-19 related services in anticipation of receiving the changed allocations in the Bill. In short, the money was not technically there yet, but it was possible to spend it. He pointed out that the framework with the new rules allowing for the different spending priorities had been gazetted on 3 July, providing the percentages within the grants that could be repurposed. On the progress on the formula reviews, he said that the appropriate place for Treasury to update legislatures on the progress of those reviews was within the medium term budget policy statement presentations.
Mr Kenyon commented that he appreciated the detailed questions and comments from the Chairperson. He said people were all susceptible to selective listening sometimes, and when the President had announced on 23 April 2020, he had been very clear that there would be this R130 billion in reprioritisation which would be the foundation for funding the relief packages, particularly in the fiscal spending aspect. A lot of the Treasury’s stakeholders had read the R20 billion addition to local government, and had not read the R130 billion in reprioritization, and had been surprised about the R20 billion relief package that was made up of some money that had been reprioritised within local government conditional grants, and some money that had been reprioritised from elsewhere.
He said that when one looked at the additions to local government, that money came from reductions across national programmes, spending in national departments, and changes in conditional grants. In the case of provinces, Treasury had had lengthy discussions with the provinces through the technical committee on finance, and the Minister with his counterparts in the budget council. One of the options would have been to make an upfront cut to provinces, and then given them back R20 billion. The consensus had been that this would be destabilising on the system, and it would be much better if provinces kept the funds that they had through reprioritisation within the sphere. The R20 billion reprioritisation was something that the provinces had asked for, and Treasury agreed on this with the provinces.
He highlighted that this was a difficult time. There were these additional demands for services at the same time that government was facing an economic crisis and a R300 billion decline in revenue, whilst it was increasing net spending. It was important to reprioritise as much as possible -- the President’s mandate was very clear on this. What Treasury was tabling in this adjustment budget was only R101 billion of reprioritisation towards the target that the President had set of R130 billion, so within this context, the reprioritisation could be even bigger.
Mr Kenyon said he accepted the Chairperson’s point on the drought relief funding, and explained that those allocations and amounts per province had been decided through a process managed within the agricultural sector and the national Department of Agriculture, Rural Development and Land Reform. This department had met with its provincial counterparts and agreed on how much each province should get from the R138m that was available in the Provincial Disaster Relief Grant, and this was how the R25m to the Western Cape had been determined. The National Disaster Management Centre had recommended releasing the full amount available in that grant, and this was not a decision of the Treasury.
On the Cuban personnel, Mr Kenyon said that his earlier statements might not have been clear. He clarified that the R283 million for the salaries of the Cuban medical professionals was a national total, and did not apply only to the Western Cape. Of the revised total of R588m for the Western Cape, only R45m was for the Cuban medical personnel.
On the question of whether the national government was paying for the Cuban medical personnel, he responded that national government was paying for the personnel through the grants, as the grants were transferred from the national Department of Health to the provinces Treasury could have structured this differently, and held the money back at the national level, appointed the personnel at national, and deployed them to the provinces. However, in the Treasury’s experience, it was better for the management of the personnel if they were paid by the people that they were working for. He said that there were also a few experts who had been deployed to the head office where they could make the most difference. He was not going to comment on all of the reductions, but this was part of the R130 billion target that had been announced by the President for reprioritisations.
On the unallocated grant funds, he responded that the unallocated money in the School Infrastructure Backlog Grant had been reduced in this adjustment budget, and most of what remained was going to be used on water and sanitation projects. By keeping the funds unallocated at this stage, it allowed for greater flexibility for the Department of Basic Education to allocate the money, as costs changed and needs emerged during the financial year, because this was an indirect grant and it did not have to be incorporated into the provincial budget.
The other unallocated grant was the National Health Insurance Grant, which was a larger amount. He explained that on the infrastructure component, Treasury had taken away almost all of the unallocated amounts in terms of the planned infrastructure projects that were vague, and these had been cut by the Department of Health and reprioritised to frontline services. There were also reductions in the unallocated amounts in the other components, but those remained largely unallocated because those NHI reforms were much more managed nationally, and the spending was much more national in terms of testing new systems, paying for new systems etc, where it was often difficult to apportion, for example, how much of a new computer network was for the benefit of each province, and this was why this money was reflected as unallocated.
On the international agreements and multi-lateral institutions to which Treasury had applied for loan funding, he responded that the answer here was more complex. These loans were all at different stages, and he was not updated on which transfers had been received at the moment. All of these loans were supporting the general budget spending. South Africa was lucky to be in a position where it did not have to say to the World Bank, for example, that R50 million was required for a particular amount of an item, as there was not this kind of strict conditionality. The country was still able to negotiate a package, and these loans were being used to finance the broader budget deficit which existed in all of the government spending.
The Chairperson asked for clarity on the issue of the Cuban doctors. She said the province was going to be paying the medical personnel employed in the Western Cape. She asked whether the personnel would be paid directly per person, or whether that money would go to the Cuban government.
Mr Kenyon responded that the personnel were paid as individuals and on South African medical grades, based on their qualifications and expertise etc..
The Chairperson allowed for follow-up questions from the Committee and the public.
Ms Waseemah Kamish-Achmat, Procedural Officer: Western Cape Provincial Parliament, confirmed that no public comments had been received in writing.
The Chairperson allowed for a ten minute suspension of the meeting so that Members could get their thoughts together before the Committee came back to draft a report on the WCCP’s negotiating mandate. She thanked the delegation from Treasury, and allowed them to leave.
Negotiating mandate report on DORA bill: Consideration and adoption
Mr Mvimbi said that the presentation from National Treasury had been very helpful, and the engagement with Members’ questions had cleared up a lot of issues. What was encouraging was that there were ongoing discussions taking place between National Treasury, Provincial Treasury and the corresponding departments around the expenditure and the national allocations. There was often an impression that other provinces were more favoured than the Western Cape, but what had come out from the presentation was that everything was left to the discretion of the province to make expenditures. Provinces were at liberty to employ their own creativity on how to juggle the funds around.
One of the issues in the division of revenue and the equitable share was the formula, and that the formula had come a long way. While he was at the NCOP meetings, he had picked up that most provinces were not happy with the formula, but in spite of this discontent, provinces were engaging the NT and various provincial treasuries on the improvements that should take place on the formula used. In light of this, he was proposing that the WCPP’s negotiating mandate be in support of the DORA Bill.
The Chairperson noted his proposal, and asked for further input from the Committee.
Mr Mackenzie referred to Mr Kenyon’s comment that sometimes stakeholders had ‘selective listening’ in regard to the President’s announcement on the relief packages, and he quoted directly from the President’s speech of 21 April, saying that “additional funding of R20 billion would therefore be made available to municipalities for the provisioning of emergency water supply, increased sanitation in public transport facilities and providing food and shelter for the homeless.” He had not wanted to call a point of order at that point, but there had been no selective hearing on the Chairperson’s part as alleged by Mr Kenyon. When R20 billion was promised to local government and the adjustment budget only provided for R11 billion, and the remaining R9 billion constituted reprioritization, this was not new money, but reprioritisation of funds that were already in the provinces, The reprioritisation constituted cuts from the local government’s budget, so there was nothing positive about it. The President’s own words had indicated that money was not an issue, and now that R2 billion had to be found as per the letter distributed to the members of the WCPP by the Provincial Minister of Finance, this was not accurate. That money came from frontline services, because there was no R2 billion sitting in a bank somewhere waiting to be spent, and this was money that was going to come from other areas in the Western Cape. He emphasised that there was not a savings account with this money sitting dormant.
He said the Committee needed to consider the net decrease in allocations to the Western Cape, and the Chairperson had highlighted about seven factual points that could not be disputed in this regard. He understood that Mr Kenyon could not comment on the Defence Force question, but this was money that should be spent on COVID-19 related purposes, such as ensuring there were beds in hospitals. In his position, he could not support a negotiating mandate for a budget that amounted to a net decrease just because it had been reprioritised.
On Mr Kenyon’s response about the grant that had been decreased since construction had been shut down under Level 5 lockdown regulations, he said that infrastructure would still be needed. He could not give a mandate to support the budget in light of the net decrease. He had e-mailed his fuller comments to Ms Kamish-Achmat, and said that she was welcome to put these on the screen as it had clear points and pages referenced on why he could not support this budget, particularly on the net decreases on projects.
Ms Nkondlo said she was not sure of the best way forward. Mr Mackenzie might be able to assist in clarifying whether this submission he was putting forward against the budget was a submission created after engaging National Treasury, or whether it was a pre-determined set of points made before the engagement had even begun and would still stand, even after the engagement. It was important to decide whether the Committee wanted to approach this question as politicians, as it had been seen in the past that when there was a DORA Bill from the national government, positions were taken along party lines. She commented that the Committee must get to a point where the conversation was more mature. She was interested to know whether in the provincial adjustment budget, the Committee Members would be raising the same sentiments.
At this particular point, with all the issues that had been answered by National Treasury and in light of the precarious fiscal environment the country found itself in, even before the COVID-19 impact, she would be more inclined to support the budget put forward. She understood that the Committee would like to note some issues, particularly on conditional grants in the context of provinces and municipalities with a history of under-spending. This concern also extended to the Western Cape municipalities which had been seen to be under-spending on conditional grants, especially those having a great impact on poor communities. She noted also that National Treasury, in formulating this budget, had been in conversation with the Provincial Treasury and had indicated that this conversation had been consulted upon. Finally, she said she was not sure what alternatives or alternative proposals were being put forward if the WCPP positioned itself as being against the budget presented.
The Chairperson said that for the record, the Western Cape had not always gone against the Division of Revenue. If there was a specific issue on conditional grants or under-spending on a particular grant, this could be included in the report. She had noted Mr Mvimbi’s indications that engagement between treasuries was ongoing, that provinces could still use the money before the budget was finalized, and the concerns raised on the equitable share formula. She said the different types of submissions that Mr Mvimbi and Mr Mackenzie had chosen to make did not make either type invalid.
In response to Ms Nkondlo, Mr Mackenzie said that there were certain things in the Bill that could not be changed, whether the engagement happened or not. What he had raised were factual matters that could not be changed. He had prepared the document before the engagement, but it was based on factual points that Treasury could not change within the engagement. He stressed that the discussion he had brought up was centred on concerns about the impact on the Western Cape. He agreed that they were operating in difficult times, but there were some factual points that he had been able to engage with before the sitting, because they could not be changed within the sitting.
Mr Mvimbi said that because the document was on screen, he would like to raise a few issues on the document. He did not know if the document from Mr Mackenzie was cast in stone, or still open for discussion.
The Chairperson said she was allowing space for a debate.
Mr Mvimbi said that when he came to a Standing Committee meeting, he came with an open mind, ready to influence and be influenced other Members. On item 6 of Mr Mackenzie’s submissions, it said that R2 billion would need to be cut from within the Western Cape Provincial budget, of which an amount was an ‘ANC spin saying that funds would be reprioritised.’ He said there was no stage where the ANC had put forward this position.
Mr Mackenzie interjected to say that this position had been put forward in Parliament.
The Chairperson asked for the debate to be orderly.
Mr Mvimbi continued that the meeting had been a joint meeting in the National Assembly, and Mr Mackenzie had had an opportunity to raise this there. It had been a joint meeting of the National Assembly and the NCOP, and the WCPP had been invited and given an opportunity to engage there. He had not seen that meeting as an ANC meeting, but a Parliamentary meeting of government. Mr Mackenzie’s submissions had gone on to say that the Western Cape province fundamentally disagreed with the current equitable share formula. He repeated that when he attended the first NCOP meeting, most provinces had questioned the formula of the equitable share. Within Mr Mackenzie’s submissions, no alternatives were provided. In this light, it seemed as though Members came to Committee meetings for the sake of objecting for political expediency. Looking at item 7, Mr Mvimbi said that he also had problems with the formula, but Mr Mackenzie’s submissions seemed to just castigate the formula, with no alternatives proposed.
The Chairperson suggested that on item 6, it may be best to amend and remove the second sentence to say that ‘reprioritisation was the same as cutting funds,’ so that the sentence was neutralised. She had noted Mr Mvimbi’s point on item 7.
Ms Nkondlo commented that the Chairperson was speaking about amending the submission from Mr Mackenzie, and asked for clarification on the standing of the submission in the Committee. She would think that as they were making inputs, that these were his inputs and the document was not a Committee document. At a time of resolutions, with the pressure of time, the Committee did not have the time to engage with the document so that it became a reference for the Committee. She was concerned about how the resolutions were being managed.
The Chairperson responded that she was aware that Ms Nkondlo had not necessarily been present at the very start of the meeting when she had explained the process of the DORA, how it got to the WCPP and the timeframe the WCPP received it in order to get things done. She repeated that by 17 July, the WCPP would need to have submitted its negotiating mandate. Mr Mvimbi had made inputs earlier and had Mr Mackenzie decided to put forward his input in writing. Despite the length of an input, Members were welcome to put their input into writing. At the moment, the Committee was discussing what would be included in the report, and Mr Mackenzie had submitted what he would like included, which was why it was being discussed before a mandate was decided upon. She explained that the Committee would take inputs and then discuss the mandate.
Mr Mackenzie confirmed the explanation from the Chairperson that the document simply constituted his inputs, and the reasons why he would not support the budget as was. In response to Mr Mvimbi, he said that he also went into meetings with an open mind. If new information came to light, he was willing to change his position. He said the majority of the budget tabled contained factual points that would not change in the course of a Committee meeting presentation. He agreed with Mr Mvimbi that various provinces had raised valid concerns about the formula on the equitable share and it was not something that provinces were simply bound to accept.
The Chairperson went through the inputs she had received so far. She noted that Mr Mvimbi had referred to the ongoing discussions between the NT and PT on funding. She asked if Mr Mvimbi would like to clarify his point, and whether Members would like to support or oppose this point being included in the report.
Mr Mvimbi clarified that he was saying that the WCPP could support the Bill, whilst also having ongoing lobbying and engagement, because it was all about lobbying. For example, the response from the NT was that for some of the expenditures seen in other provinces, national government was being blamed for pumping money into the province. National Treasury had said that it was those provinces which got creative about their funding. On Members’ concerns about funding cuts, he said that if a province spent money on food relief, public health issues and challenges, and COVID-19 purposes, and that province approached national government with this information, surely the national government was not going to take issue with that spending. He asked for clarity on whether Mr Mackenzie maintained that the reprioritisation was an ANC spin. On item 7 in Mr Mackenzie’s submission, he raised again that Mr Mackenzie was simply criticising the equitable share, and not proposing an alternative.
The Chairperson asked Mr Mackenzie again if item 6’s second sentence could be changed.
Mr Mackenzie replied that he was happy to change the sentence.
The Chairperson noted the change as “reprioritization was essentially the same as a cut.”
Regarding Mr Mackenzie’s item 7 on the equitable share, the Chairperson said she supported the points that he had made for the specific reason that it was acceptable for Members to indicate what they disagreed with. On item 7(a) of his submission, she said that previously it had been debated that the disagreements on the equitable share did not indicate their reasoning, and the document submitted by Mr Mackenzie now clearly showed the specific disagreements in the equitable share. On the education aspect, for example, he had indicated in his submission that the provincial equitable share formula did not adequately provide for learners who required special education. She remembered in a previous Division of Revenue meeting, it had been said that learners with special needs were not taken into account in the education component of the provincial equitable share. She said that even though learners with special needs required more funding for their teaching and learning, they got the same amount as learners who did not have special needs.
On item 7(b) of Mr Mackenzie’s submission, she noted that the point related to the FFC and the quality and reliability of data for human settlements and transport. On item 7(c), the point says that in the review of the formula, both factors should be taken into consideration. She said this seemed to her a clear resolution on item 7. She said that the rest of the information was all factual and included references to particular amounts, page numbers and grants. She did not see anything wrong with this.
After the Chairperson had expressed worries about load-shedding interruptions, Mr Dugmore said that he was not sure if she was aware that at this point in time, Eskom had 34 000 megawatts of power, being the highest in the year, and that from 22:00 there was not expected to be any further load shedding for the rest of the week. He thought Eskom should actually be commended for having the highest amount of power available in 2020, even under these difficult circumstances.
The Chairperson said that she was aware of this, and had received a message from Eskom regarding the load shedding. She was not sure that the Committee should be commending people for keeping the lights on, as this was essentially their job.
Mr Dugmore clarified that he was not being serious about moving this as a resolution, and was simply commenting on her concerns about load shedding light-heartedly.
Ms Nkondlo said she still maintained her position, and would have loved to have engaged Mr Mackenzie’s document. It was in fine print at the moment, and she could only agree here and there as per the comments the Chairperson was making on the document. She would rather not pursue an approach where, as a Member of the Committee, she did not have ample time to engage his written submission. Members should also be allowed to confirm the facts in the document.
The Committee needed to get to some kind of conclusion, which was that there was a proposal from Mr Mvimbi which she supported, and a proposal from Mr Mackenzie which the Chairperson supported, and therefore there needed to be clarity. The issue now was on the individual submissions of Members of the Committee, so they should be given the time to propose a submission and engage with the submissions. She was not going to be coerced simply because there was a presentation in front of the Committee which she had not engaged with. She would like the Chairperson to guide the Committee in integrating its views and coming to a conclusion.
The Chairperson responded by saying that it was not any Member’s fault that there was not time to engage any document or Member’s input, because the Bill had been completed in the NA only on 15 July. She reminded the Committee that the due date for the negotiating mandate was 17 July. She said that between 15 and 17 July, there was one day available for the negotiating mandate to be formulated, and there were also other meetings that were being held today. Previously, Members had specifically asked that the Committee make sure to include its comments and reasoning in the negotiating mandate and not in the final mandate, which was what was happening now. She reminded Members that the NCOP wanted the final mandate by 21 July, which was why the WCPP’s final mandate meeting was on 20 July.
She began to comment on Ms Nkondlo’s support for Mr Mvimbi, but was cut off by Ms Nkondlo’s interjection.
Ms Nkondlo interjected to say that the Chairperson was out of order, and should not reduce her support. The Chairperson could not make her own judgment call and say that Ms Nkondlo’s support was simply “moral support.”
The Chairperson responded that she had said this only in jest. She had said this because Mr Mvimbi, Mr Mackenzie, Mr G Brinkhuis (Al Jama-ah) and Ms W Philander (DA) were all permanent Members of the Committee. Mr Mvimbi had put forward a proposal that the Committee supports the Bill. She needed a seconder this proposal and unfortunately, in terms of the process of the Committee, she needed someone who had voting rights for the meeting at hand. She explained that this was why she had made this comment.
Ms Nkondlo said that she accepted this point, as it was not about her content.
Mr Dugmore asked about the deadline from his position as an observer in the meeting. He had been battling to read the content of Mr Mackenzie’s document in full, and asked whether it was not possible to give the Committee Members an opportunity, and reconvene for an hour on 17 July.
The Chairperson said that she was concerned that there were other meetings also convening on 17 July, and she would not know when to reconvene this meeting. She asked the procedural officer to confirm the times for the NCOP’s meeting.
Ms Kamish-Achmat responded that the officers were still waiting to find out about the exact times of the meeting, and confirmed that the negotiating mandate would need to be sent over as soon as possible.
The Chairperson said that this clarified that there would be a negotiating mandate meeting, at which the WCPP would need to provide a negotiating mandate for the NCOP, but the exact time of the sitting was not clear. This was why it was important for the Committee to put forward their reasons. The Chairperson said that if there was no seconder for Mr Mvimbi’s motion to support the Bill, then unfortunately the proposal falls. She asked the Committee if there was any other proposal.
Mr Mackenzie said he had submitted his proposal that the WCPP should not support the Bill, and had offered his reasons why.
The Chairperson asked if there were any seconders for Mr Mackenzie’s proposal.
Ms W Philander (DA) commented that the matter was not a matter of imposing anyone’s position on anyone. The Committee had had the opportunity to interrogate the documents and apply their minds according to the questions that had been raised. In light of this, she was seconding the proposal put forward by Mr Mackenzie.
The Procedural Officer clarified that the NCOP would be meeting at 15:00 on 17 July 2020 for the negotiating mandates.
Mr Mvimbi commented that the Committee had agreed to disagree, and the majority ruled.
The Chairperson responded that this was okay. She announced that the motion had thus been passed.
The Chairperson said that the negotiating mandate would then be read with the reasons included, with the amendment of item 6 from Mr Mackenzie’s input.
The negotiating mandate stage draft report of the Budget Committee on the Division of Revenue Amendment Bill [B9-2020] dated 16 July 2020 was as follows:
- The Budget Committee, having considered the subject of the Division of Revenue Amendment Bill [B9-2020] NCOP, referred to it in accordance with Standing rule 217, confers on the Western Cape delegation in the NCOP the authority to not support the Bill.
Mr Mvimbi asked that his minority vote be recorded to support the Bill.
The Chairperson asked that the procedural officer also make sure to record the minority vote to support the Bill, as proposed by Mr Mvimbi.
Ms Kamish-Achmat agreed to add the minority vote to the negotiating mandate.
The Chairperson said that the rest of the items for the meeting would be dealt with at the next meeting, including the adoption of minutes.
The meeting was adjourned.
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