Second Division of Revenue Amendment Bill: National and Provincial Treasury briefing
23 November 2020
Chairperson: Acting: Mr R Mackenzie (DA)
Video: Budget Committee, 23 November 2020, 09:00
Division of Revenue Second Amendment Bill
The Committee was briefed on the Division of Revenue Second Amendment Bill [B24–2020].
When Members were informed by National Treasury that the Division of Revenue Second Amendment Bill made amendments to the Division of Revenue Act (Act 4 of 2020), they asked if it was true that the Western Cape’s budget would be cut by R10 billion and how much of the R10 billion was contributed from national and how much came from the province itself. Members sought further clarity as to whether it was Provincial Treasury or National Treasury that decided on the reallocations for municipalities.
The Western Cape Provincial Treasury enlightened Members about the dynamic in the two critical issues at hand which were behind the very significant reduction in compensation. The first being around the basis for the calculation of the reduction for the current financial year, and the second issue was around the certainty of achieving the formal reduction in expenditure. Members referred to the wage freeze and were concerned about labour’s view on the matter and whether employees had been a part of the engagements.
The Committee heard the changes to the Provincial Equitable Share, the changes to the Presidential Employment Initiative (PEI), reductions to Local Government Grant Allocations, the rollover of funds and the additional funds for the water services infrastructure grant. Some of the questions the Committee asked were: how the Treasury would ensure in terms of oversight mechanisms going forward that the local communities and smaller black owned companies and contractors benefitted from the allocation which had been set aside for the building of roads; about the Swellendam Municipality having to surrender their allocation amounts to the Mossel Bay Municipality; how much of the R10 billion was contributed from National and how much came from the Province itself; and whether it was Provincial Treasury or National Treasury who decided on the reallocations for the municipalities. Members referred to Minister Mboweni’s tweet the previous night asking if the country even needed a national airline and asked how the budget cuts could be justified given that resources were already under strain and crippling.
In response to the above questions, the Committee heard that there were two types of reductions over the 20/21 MTEF and due to the current employee workforce being far too large for the current fiscus to carry along with the current economic activity, the compensation of employees wage freeze reductions amounted to R8 billion over the MTEF, while the fiscal consolidation theory reduction amounted to R10 billion over the MTEF. Also that the Presidential Employee Initiative was an important point which made municipalities realise that they needed to look at their own resources as well to see how they could execute service delivery in a more job efficient or community-based programmed way.
Members asked for a definition of the wage freeze and whether it meant an actual zero percent (0%); whether there had been any indication as to when judgement would be passed on the matter; whether employees had been involved in engagement forums and whether any public participation had occurred when deciding on the wage freeze. Members felt comforted seeing the conversation occurring between both levels of the Treasury in order to try and resolve the speculative discrepancy. Members were very pleased to hear that the province was in regular contact and discussions with Labour Unions, as the matter itself was subject to legal action, and they continued to try and maintain very productive relations with Labour. On the issue of the wage freeze Members heard that ‘the definition itself had complexities in it and was a question which ran to the heart of what they were trying to work at with the National Treasury. The current legal action was based on the 2018 wage agreed on and not over the MTEF’. Further ‘A wage freeze basically constituted a zero percent cost of living adjustment’.
Not all Members were in support of the Bill. The Bill was supported only by the ANC. The DA said they ‘could not possibly support the Bill when just the previous night the Minister of Finance tweeted the question as to whether the country even needed a national airline carrier’. The ANC felt that for the economic recovery to prosper and as part of the balance of government to repair the economy they needed to support the efforts to save jobs and minimise adding to the unemployment of the country. The report was considered and adopted to not support the Bill, with the minority view being noted.
The Committee Procedural Officer welcomed the Members and informed them of the apology and absence of the Chairperson due to being ill. According to Standing Rule 82(3), in the absence of the Chairperson, the Committee needed to nominate and vote for a Member to act as Chairperson for the meeting. Nominations were called for.
Mr R Mackenzie (DA) was nominated and voted for as the Acting Chairperson for the duration of the meeting.
The Chairperson thanked the Committee for the nomination. After which the rules of engagement was explained and introductions by Committee Members and delegation was done.
NT briefing on the 2020 Division of Revenue Second Amendment Bill
Ms Wendy Fanoe, Chief Director: Intergovernmental Policy and Planning, National Treasury, stated that the Division of Revenue Second Amendment Bill (DoR2ndAB) made amendments to the Division of Revenue Act (Act 4 of 2020) as amended by the Division of Revenue Amendment Act (Act 10 of 2020). Section 12(4) of the Money Bills and Related Matters Act required that the Minister of Finance tabled a DoRAB with the revised fiscal framework if the adjustments budget effected changes to the DoRA.
Changes to the Provincial Equitable Share:
-R25.3 million is reduced from the 2020 baseline as part of the reduction of R160 billion to the growth of the public- service wage bill.
-R500 million is added to provide for food relief in response to the impact of COVID-19 to mitigate the adverse effects of hunger.
-R7 billion is added to the baseline to employ education assistants at schools (e.g., classroom assistants, cleaners, screeners, reading assistants, after school assistants) and to save school governing body posts at fee paying schools and government-subsidized independent schools.
Changes to Provincial Conditional Grants – Presidential Employment Initiative (PEI):
-In the 2020 Second Amendment Bill (SAB), a provisional allocation was set aside to respond to the increase in unemployment due to COVID-19.
-A number of applications from National Departments were conditionally approved for the purpose of the PEI – and a total of R1.5 billion is added to direct conditional grants for provinces for job-creation purposes
Reductions to Local Government Grant Allocations:
Local government conditional grants will be reduced by R613 billion:
-R4 million from the integrated city development grant;
-R2 million from the infrastructure skills development grant;
-R12 million from the integrated urban development grant;
-R180 million from the municipal infrastructure grant;
-R12 million from the neighbourhood development partnership grant;
-R253 million from the public transport network grant;
-R78 million from the water services infrastructure grant;
-R18 million from the integrated national electrification programme (Eskom) grant; and
-R55 million from the regional bulk infrastructure grant
Other Changes to Local Government Grant Allocations:
Roll-over of funds
-R390 million is rolled over in the urban settlements’ development grant to fund commitments for bulk infrastructure related projects in Nelson Mandela Bay Metropolitan Municipality;
-R98 million is rolled over in the public transport network grant to for public and non-motorised infrastructure in Nelson Mandela Bay Metropolitan Municipality;
-R307 million is rolled over in the regional bulk infrastructure grant for drought and COVID-19 water and sanitation interventions nation-wide.
Additional funds for the water services infrastructure grant:
-R12 million is reprioritised from the Department’s budget into the indirect component of the water services infrastructure grant to Lekwa Local Municipality
Mr C Dugmore (ANC) wanted to know with reference to the speech made prior by the Premier of the Western Cape whether or not it was true that the Western Cape’s budget would be cut by R10 billion. Secondly, while welcoming the R496 million allocated to the Presidential Public Employment Programme for ECDs; he sought more details regarding the intention to fund ECD practitioners, along with the number of practitioners who would be funded and the duration of it. He asked as to how the Treasury would ensure in terms of oversight mechanisms going forward that the local communities and smaller black owned companies and contractors benefitted from the allocation which had been set aside for the building of roads.
Information was sought as to the Swellendam Municipality who had to surrender their allocation amounts to the Mossel Bay Municipality. Lastly, he wanted to know if the National Treasury was encouraging Provincial Governments including Local Municipalities to look at their own budgets with regard to the Public Employment Programmes.
Ms N Nkondlo (ANC) asked for more clarity and understanding regarding Slide 17 which dealt with the adjustments to the Western Cape’s Municipal Allocations.
Mr L Mvimbi (ANC) with reference to the question posed by Mr Dugmore, asked for some light to be shed with regard to how much of the R10 billion was contributed from National and how much came from the Province itself. Secondly, indication was sought as to the meaning of the bottom note on Slide 4 which dealt with equitable shares. Regarding the equitable share formula allocation, he asked as to whether there had been some consultation with the Provinces and in particular the Western Cape as it seemed that Committee Members always complained with regard to the lack of consultation.
Ms M Wenger (DA) asked when the Second Division of Revenue Bill had been tabled with the National Council of Provinces (NCOP).
Mr D America (DA) wanted to know whether it was Provincial Treasury or National Treasury who decided on the reallocations for the Municipalities and in particular on the Swellendam matter.
The Chairperson, with reference to the learners, wanted to know how the formula determined where or where not to take money from. With Tito Mboweni tweeting the previous night asking if the country even needed a national airline, the Chairperson saw fit to ask how the budget cuts could be justified given that resources were already under strain and crippling.
Ms Fanoe responded that the equitable share formula indicated the reductions which had been made to the Western Cape. The reduction according to her was definitely not in the billions for the Western Cape and fell below R1.5 billion. Regarding the ECD practitioners question, she stated that she unfortunately could not answer it fully as the National Department of Social Development was largely responsible for that and could provide substantially more information. However, in terms of the Presidential Employment Initiative she answered that the money would last until 31 March 2021, after which it would be subject to the rollover requirements.
Regarding the Provincial Roads Maintenance Programme, she clarified that the focus of the intention behind that was to benefit the community and small black owned businesses. Community upliftment was the key factor behind the initiative. She explained that provincial and local government were largely responsible when it came to the Presidential Employment Initiative and that National Treasury would not be responsible for the issuing of the guidelines nor the development of a framework in terms of monitoring the performance of the programme. Regarding the Provincial Equitable Share Formula, the amount which the Western Cape received was based on the number of applications received by the respective provinces, including the one received by the Western Cape and as such, those amounts had already been predetermined.
She emphasised that National Treasury had a mechanism in place to deal with checks and balances, including overall oversight over the monitoring of spending. That was done in collaboration with the Provincial Treasury who monitored things more closely on the ground. She clarified that with reference to Departmental spending and administration, many of the times the spending requests would come directly from the national department concerned; however, National Treasury and Provincial Treasury’s could also recommend.
Regarding the reductions in the Provincial Conditional Grants, those were made with regard to the recovery plan where National Treasury advised the Department of the reductions which were required, all while keeping the fiscal framework intact to fund the recovery plan which meant that the reductions had to have been made to not only the national departments but also the provincial departments too.
During the 2020 budget speech, the Minister announced interventions to address the fast growing and unsustainable wage bill. One of those proposals was to reduce the public sector compensation bill by R160 billion over the 2020 MTEF. According to the budget review, the public wage bill was supposed to have been reduced by R37.8 billion specifically for the current year which was the 20/21 financial year. The R7.8 billion compensation of employee’s reductions was applicable to national, provincial, as well as national public entities which essentially were equated with a freeze in salary adjustment or no cost of living adjustments for the current financial year. The criteria behind the wage agreement was one which was quite detailed and relied on different parameters.
With reference to the conditional grants and capacity of municipalities, she emphasised that indeed it was a concern and while the responsibility lied with municipalities in the first stance, it was the responsibility of the national department to provide support to those municipalities in order to build their capacity as well as encourage better spending on their programmes. There were also other initiatives which had been introduced to assist Municipalities who were lacking capacity.
Mr David Savage, Head of the Western Cape Provincial Treasury, responded that most of the municipalities had been affected and were taking measures to try and catch up on the lockdown related delays. The underlying issue of spending capacity in the municipalities was quite a complex issue in the sense that it obviously required good governance but on the flipside of capacity, they also needed to have functioning systems which were compliant with the law in order to execute their complex expenditure programmes efficiently – such as the Capital Spending Programme.
Regarding the Public Employment Programmes, he clarified that those had been addressed in the individual programme’s designs. Regarding South African Airways, he stated that there was a sub-committee of the technical committee on finance which dealt with those particular issues and took various factors and data into account such as that of the population movement, etcetera.
Mr Dugmore stated that in leaving aside what the Premier had said, by looking at the budget of the Western Cape over the MTEF, he wanted to know whether it were likely that the budget would be cut R10 billion. He stated that in terms of the Presidents Public Employment Initiatives there seemed to be no discussions being held at local government.
Mr America sought clarity on the R24 billion reduction of the freezing wage bill. The presentation on the public wage bill would provide clarity in order to understand those new categories specifically food relief and the Presidential Employment Programme.
Ms Nkondlo sought a response around the specific grants which had been mentioned and wanted to know if they had any implications for the service delivery of municipalities. With reference to first question, she asked that if more information where available, for that information to be shared at a later stage. Understanding was sought with regard to the final analysis in terms of the adjustment on Slide 12.
Ms Fanoe responded that there were two types of reductions over the 20/21 MTEF. Allocation letters had been sent to the provincial treasury and as such they had the information available to them. The wage freeze had been announced in the 2020 MTEF which would be applied over three years. Secondly, there was also a further reduction for the compensation or fiscal consolidation reduction.
The current employee workforce was far too large for the current fiscus to carry along with the current economic activity and position the country was in and as such there needed to be a reduction. That was not the only reform, but it was one of the key reforms in order to right-size government in terms of what the fiscus could afford. The compensation of employees wage freeze reductions amounted to R8 billion over the MTEF, while the fiscal consolidation theory reduction amounted to R10 billion over the MTEF.
The Presidential Employee Initiative was an important point which made municipalities realise that they needed to look at their own resources as well to see how they could execute service delivery in a more job efficient or community-based programmed way. Making an adjustment to the Municipal Infrastructure Grant for the law expansion on maintenance was definitely a very good way to create job employment. In the Covid-19 Adjustments Budget, R11 billion was added to the Local Government Equitable Share and municipalities could look at directing parts of those monies to the improvement or creation of initiatives. Regarding Slide 12, the first column indicated the additions to the conditional grants. it was followed by the recovery adjustments and then the addition next.
Western Cape briefing on the 2020 Division of Revenue Second Amendment Bill
Mr Savage stated that that he wished to outline some of the dynamics which were behind the very significant reductions for compensations. There were two really critical issues at hand, the first being around the basis for the calculation of the reduction for the current financial year. The second issue was around the actual certainty of achieving the formal reduction in expenditure.
Dr Roy Havemann, Deputy Director-General: Fiscal and Economic Services, Western Cape Provincial Treasury stated that the issue related to the reduction in compensation which related to the R2.4 billion which went up to the Provincial Capital Share and was a very significant amount. They had been doing a lot of research and worked with National Treasury to understand how that amount was calculated. The second issue related to how that amount would be applied to the individual votes which they would be tabling on Thursday.
Interventions and Remedial Action
As a result of the risks facing provinces, the Western Cape Government has actively sought to directly engage National Treasury:
-Provincial Treasury have sought clarity on the discrepancy in the calculations in several technical engagements and the management of the contingent liability; and
-The Provincial Minister has written to the National Minister twice requesting an urgent meeting. The meeting was agreed to, subsequently postponed and is now being rescheduled.
Remedial action sought:
-Request clarity on the additional R538.7 million and potentially a return on these funds; and
-Request a written commitment from National Treasury in the event of a settlement or the loss of the case.
Mr Dugmore wanted to know whether there had been any indication as to when judgement would be passed on the matter. Secondly, he sought an explanation as to the definition of the wage freeze and whether it meant an actual zero percent (0%) increase.
Ms Nkondlo stated that it was comforting to see conversation occurring between both levels of Treasury in order to try and resolve the speculative discrepancy. Secondly, with regard to the wage freeze she sought to know the position of labour in particular and whether the employees had been involved in engagement forums or communicated with individually – basically, whether any public participation had occurred when deciding on the wage freeze.
Mr Savage responded that the court date had been scheduled for 2 December 2020. The province was in regular contact and discussions with labour unions, as the matter itself was subject to legal action and the complexity of the issues was that the negotiations were actually conducted at National Level
Public participation and insights into those negotiations were very limited and as such their concern was that they would bear the downside risk and be left with the contingent liability – something which they were not sure how they would handle as they did not have a significant seat the at table, however, they continued to try and maintain very productive relations with labour.
Regarding the definition of freeze, she stated that the definition itself had complexities in it and was a question which ran to the heart of what they were trying to work at with National Treasury. The current legal action was based on the 2018 wage agreed on and not over the MTEF.
Regarding the normal wages, there was a performance component which was called ‘py progression’ and included various benefits, the most important one being medical benefits. They had frozen the cost of living adjustment; however, it was not possible to freeze the medical benefit component because they paid their employees contribution for medical aid. Payments for medical aid had been paid and was a liability in terms of the employment contract.
They had received a compensation of employee’s technical guidelines which was available on the National Treasury website. A wage freeze basically constituted a zero percent cost of living adjustment. It would still increase in line with inflation and as such the wage freeze basically only constituted a zero percent cost of living increase adjustment, however, it did not mean that no increase would occur.
Consideration and adoption of the Negotiating Mandate Report on the Division of Revenue Second Amendment Bill [B 24-2020]
Mr R Allen (DA) proposed that the Bill not be supported
Ms Nkondlo proposed that the Bill be supported. Elaborating further that for the economic recovery to prosper and as part of the balance of government to repair the economy they needed to support the efforts to save jobs and minimise adding to the unemployment of the country.
Ms W Philander (DA) seconded the proposal to not support the Bill
Mr Mvimbi seconded the proposal to support the Bill
The Chairperson stated that he could not possibly support the Bill when just the previous night, the Minister of Finance had tweeted the question as to whether the country even needed a national airline carrier.
Ms M Wenger (DA) asked if part of their negotiating mandate could be that they be given more time to conduct adequate public participation on the matter.
The Chairperson agreed with the proposal by Ms Wenger and stated that it would be noted.
The negotiating mandate was adopted and the Committee resolved not support the Bill, with the minority view being noted.
Consideration and adoption of Committee Minutes
Minutes dated 28 August, 6 October and 20 October 2020 were adopted.
The Chairperson thanked the Committee Members and delegation for their attendance. The support staff were thanked and everyone was asked to keep safe and enjoy the rest of their day.
The meeting was adjourned.
Mackenzie, Mr R
Allen, Mr R
America, Mr D
Bosman, Mr G
Maseko, Ms M
Mitchell, Mr D
Mvimbi, Mr LL
Nkondlo, Ms ND
Philander, Ms W
Wenger, Ms MM
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