Division of Revenue Bill: hearing; Drought Relief Adjustments Appropriation Bill: briefing

NCOP Finance

24 February 2004
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Meeting Summary

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Meeting report

FINANCE SELECT COMMITTEE

FINANCE SELECT COMMITTEE
25 February 2004
DIVISION OF REVENUE BILL: HEARING; DROUGHT RELIEF ADJUSTMENTS APPROPRIATION BILL: BRIEFING

Chairperson: Ms D Mahlangu (ANC)

Documents handed out
Portfolio Committee Amendments to Division of Revenue Bill [B4A-2004]
Drought Relief Adjustments Appropriation Bill [B5-2004]
National Treasury presentation on Division of Revenue Bill
Financial and Fiscal Commission (FFC) submission: Table of contents
Financial and Fiscal Commission (FFC) submission: Introduction
Financial and Fiscal Commission (FFC) submission: Annexure 1
Financial and Fiscal Commission (FFC) submission: Annexure 2
Financial and Fiscal Commission (FFC) submission: Annexure 3
Financial and Fiscal Commission (FFC) submission: Annexure 4
FFC Powerpoint presentation
South African Local Government Association (SALGA) submission
SALGA presentation
Department of Health submission
Department of Education submission
Department of Housing submission
Department of Social Development submission

SUMMARY
The Drought Relief Adjustments Appropriation Bill could not be finalised because the Committee did not have a quorum. An amount of R250 Million has been made available for drought relief in the current financial year (2003/04). An additional amount of R500 million would be made available in the next financial year.

Following FFC's suggestion that the levels of poverty have increased from what they were during the apartheid era, the Chairperson said that one must be cautious when making such a comparison because one may unjustifiably perpetuate the notion that poverty levels have increased This is more so given the lack of data on poverty during the apartheid era which one could use to compare conditions under the different eras.

SALGA said that there is huge difference between the 2003 and 2004 divisions of revenue. Some municipalities have seen large increases in the equitable share whilst others have seen some decreases with nodal municipalities receiving less in this Division of Revenue Bill than in the 2003 Division of Revenue Act. There are unexplained changes in the size of variables set at policy level within the equitable share formula. There is also lack of transparency surrounding what factors are driving the changes. The larger, wealthier metropolitans have all seen their local government equitable share allocations increase, while this is not the same for the less wealthy metros.

There was concern that provincial expenditure on housing was very low due to under-spending and lack of delivery despite the fact that there are 1.9 million households that live in informal settlements. The Department had experienced slowdown in delivery in the past two years resulting in an average of 20% underspending. The Department of Housing supports the retention of conditional grants as they provide the basis for uniform norms and standards across the country.

The Department of Social Development would manage the HIV and AIDS programme conditional grant, the extension of the child support grant and the food relief programme in the 2004/05 and subsequent MTEF years. The actual social development expenditure exceeds budget allocation and therefore provinces have to top up the deficit. Actual allocations per province are not in line with projected expenditure as determined by demographic and financial models.

The Integrated Nutrition Plan would be removed from the Department of Health to the Department of Education. The funds allocated for this programme would follow it to the Department of Education. The Department of health aims to revitalise three hospitals per year and the revitalisation of individual hospitals will run in parallel.

MINUTES
National Treasury presentation to Finance Select Committee

Mr. I Momoniat (Deputy Director-General: Intergovernmental Relations) made the presentation. The national government supports the Financial and Fiscal Commission's proposals. For instance, a proposal on the appropriate approach on the funding of HIV and AIDS and the need for a review of local government framework.

There is a problem around compliance with the Division of Revenue Act. Some departments get an adverse audit but the Auditor General does not look at how they administer conditional grants. This gives the departments concerned the impression that they are not doing anything wrong since the Auditor General said nothing about the audit. The Auditor General should go further and say what the problems are since it does not help just to say that there were material non-compliance.

Ms J Fubbs (ANC) [Gauteng] commented that strategic plans are being tabled very late and this makes it difficult to have a clear understanding as whether the budget has been allocated according to effective planning and implementation. She also commented that that there is a need for flexibility in conditional grants. However, one should not allow a situation where the funds are used for different projects. If one has some flexibility, for instance in housing, one would overcome issues like the dolomite situation, things that perhaps may have been beyond the control of the use of the conditional formulas

Mr Z Kolweni (ANC) [North West] asked if the Auditor General benefits in any way from the oversight role played by different committees. This is important as there is a complaint that the Auditor General is not satisfied with the non compliance with conditions by departments.

Mr Momoniat replied that most of the Departments get unqualified audits. National Treasury has always wondered how those Departments get unqualified audits despite the numerous shortcomings that they have. The question remains whether quality checks are done on audits.

Under-spending by provinces remains a huge problem. The chairperson asked as to what extent does the amnesty given to provincial housing departments perpetuate the current trend of underspending. Various reasons are given as to why provinces are not spending money as expected.

Mr Momoniat said that the strange thing is that the Auditor General only audits financial statements for a financial year. But what about the outstanding issues from the previous financial year? When do they get taken up? It is important to find if a grant was spent to the very last cent. If one is doing an annual audit and there is money that was not accounted for in the previous year, such money should be reflected as outstanding matters from the previous year. However, this is not done in the government auditing system. This is shocking especially when looking at the under-spending and subsequent rollovers. One would expect that the balance would be rolled over but this is not always the case. Perhaps this is because provinces know that expenditure would not take place in the forthcoming year and hold on to the money until it decides to spend it. Another reason could be that provinces are treating the money as savings and therefore it is provincial revenue that could be spent on other things.

The amnesty clause tries to bring some transparency into how the balances are dealt with. The issue of rollovers reflects the failure of the national department to check that the conditional grant was administered properly and the failure of provincial departments to spend as expected.

Mr Momoniat agreed that departments always come with different reasons for failing to spend money as expected. When one knows what the problem is, an attempt should be made to solve it. Some of the problems are made worse due to lack of communication between and within the different spheres of government.

Ms Fubbs noted that every year Treasury has always said that it is looking at ways of making conditional grants more realistic. It has, in the Division of Revenue Bill, indicated that the audit reports would allow for more accountability between the spheres of government. Experience in Gauteng Province shows lack of accountability. She asked Treasury to comment on accountability as it relates to conditional grants.

Mr Momoniat replied that the government is trying to solve the problem of accountability.

Ms Fubbs expressed concern over funds that are given to provinces as neither part of the equitable share nor conditional grants. Such funds are given to provinces to carry out agency type of work. An assumption is often made that provinces do not need to administer such funds but one only needs buy materials with that money. She felt that these funds impact on the provincial costs of administration.

Mr T Ralane (ANC)[Free State] said that the national government is providing some assistance to provinces to mitigate the effects of drought. However, provinces have their own budgets and contingency reserves. He asked to what extent are provincial departments playing a role in this. He urged provinces to monitor what it is that is done with their contingency reserves and budget relating to emergencies.

Mr Momoniat replied that to the extent that provinces have contingency reserves, they should be allocating this in their adjustment process. They should not have any contingencies after the adjustments.

Mr K Durr (ACDP) felt that the HIV/AIDS grant should fall under the Health budget and not be treated as a conditional grant. He also asked if the government does quality auditing. For instance, does the government inspect if road has been built according to the specifications?

Mr Momoniat said that the fact that the HIV/AIDS grant is given as a conditional grant does not mean that it is totally separated from the Health budget. It largely depends on what it is spent on. The HIV/AIDS grant assists in social development, community based care and education about HIV/AIDS related issues. Making this a conditional grant is important in that it makes sure that there is prioritisation in budgets.

With regard to auditing Mr Momoniat replied that the Auditor General and not the National Treasury does the auditing. The audit is largely a financial as opposed to quality audit. He acknowledge the need for the Auditor General to be doing more than financial auditing. In cases where the Auditor General's roles are not fulfilled accordingly, parliamentary committees should be made aware of this. If there is not good parliamentary oversight, it is unlikely that one would get a good product.

Financial and Fiscal Commission submission
Mr Jaya Josie (FFC Deputy Chairperson) said that the FFC is pleased that government supported FFC's recommendations and submission although of them would not be implemented in the next Division of Revenue Bill. He then handed over to his colleagues to handle the presentation.

Mr Conrad van Gass, Budget Analysis Manager, made the presentation on provincial and local governments fiscal framework issues and on the progressive realisation and performance reporting on poverty reduction by provincial governments. Mr Jeoffrey Mashele, Budget Analysis Researcher, presented the overview on government spending and financing trends and projections.

Discussion
Following FFC's suggestion that the levels of poverty have increased from what they were during the apartheid era, the Chairperson said that one must be cautious when making such comparison because one may unjustifiably perpetuate the notion that poverty levels have increased This is more so given the lack of data on poverty during the apartheid era which one could use to compare conditions under the different eras.

Mr Ralane agreed with the chairperson's view on poverty levels. He said that the same caution should be employed with regard to the issue of unemployment. Historically, there were no records of unemployment in the former homelands. Various laws ensured that people who sought employment in the old South Africa could never spend more than 48 hours in any town. The problem of unemployment dates from the 1970s and therefore it would be unfair to say unemployment had increased in the democratic dispensation.

Mr Josie replied that the point raised by the Chairperson on poverty levels was well taken. FFC's conclusion are based on the statistics made available by Statistics South Africa. As it is now there in no basis for validating the data. As a constitutional body the FFC is obliged to make use of the official information as presented by Statistics South Africa. The Reserve Bank also collects data but they are not very specific. Statistics South Africa's figures sometimes do not concur with the Reserve Bank data. There are also different views on what constitutes employment or unemployment. Various controversies exist around unemployment especially when one deals with the informal sector and small businesses.

Ms Fubbs asked if the poverty figures the FFC used came from the 1996 or 2001 Census.

Mr van Gass replied that the October household survey was used. He admitted that there are various problems with the survey which make it incomparable. It is correct that employment has increased.

Mr Josie said that the issues of definitions, data and indicators present most of the difficulties between the FFC on the one hand and the National Treasury and Departments on the other. Parliament should ensure that there is consensus on the use of definitions. The way the system is tends to favour the private sector and is not geared towards intergovernmental fiscal relations and addressing the constitutional imperatives. The FFC has made some recommendations and Treasury has not yet responded on this.

Department of Health submission on Division of Revenue Bill
Dr Kami Chetty (Director-General: Department of Health) presented (see document).

Discussion
The Chair commented that if one looks at the framework of conditional grants there is a reference to a report on what the hearings of the Committee have identified as the weaknesses in some of the information from the Departments. The Department must take notice of issues such as auditing raised by the Auditor General on conditional grants

The Chair noted that Mr Momoniat had raised the issue about the comprehensive response of government on the funding of HIV/AIDS programmes. He indicated that the HIV/AIDS grant remains a conditional grant and not part of the equitable share because it is believed that this is the best way of responding to the pandemic. The feeling is that if the grant is incorporated into the equitable share one would never be sure if the money would be spent on HIV/AIDS programmes.

Mr T Ralane(ANC)[Free State] asked if the Departments of Health and Education had ascertained the readiness of the Department of Education to take over the Integrated Nutrition Plan. Were there transitional arrangements in place to ensure that there is no interruption when the Plan is handed over to the Department of Education? He also asked if the statement that "all provinces except Mpumalanga and North West have indicated that the full budget would be spent by the end of the financial year" applied to the 2003/04 or 2004/05 financial year.

Dr G Muller (Department of Health) replied that the statement refers to the financial year 2003/04.

Dr E Mhlanga (Department of Health) replied that there had been discussions between the departments and that the Department of Education has confirmed that they are ready to take over. The Department of Education also wants to change the name of the programme to School Nutrition Programme. The Department of Health would continue to support the Department of Education to ensure that everything runs smoothly during the transfer period.

Mr Z Kolweni (ANC)[North West] noted that there is an emerging sense of voluntarism by people. However, there are problems in that some volunteers are given stipends for the work they do whilst others are neglected. He appealed for the Departments of Health and Social Development to talk to each other on this issue.

Dr Chetty commented that the Department has taken a decision that community health workers would be paid a minimum stipend of R1000 a month. Such workers would not become government employees by virtue of being given the monthly stipends. She acknowledged that there are differences in the amounts provinces are paying community health workers and that some people are paid nothing at all. It is important to distinguish between on the one hand community health care workers, home based health workers and doctor supporters and on the other hand a volunteer who is there as part of the Batho Pele initiative. If one starts looking at the issue of stipends for volunteers then one takes away the underlying principle of volunteerism. There are volunteers who demand that they get paid and should also receive first preference for jobs. A general discussion around voluntarism is necessary.

Ms Fubbs (ANC) [Gauteng] said that in terms of the Drought Relief Bill the Department of Health would receive R35 million to spend on the prevention of communicable diseases. She felt that this is a conditional grant but the conditions are not specified. She asked the Department to furnish the Committee with the conditions in writing.

The Chairperson felt that it is not a conditional grant and would be incorporated into the 2003/04 financial year because it was appropriated within this financial year.

Ms Sandra Sooklal (Treasury) said that it is a conditional grant and would be gazetted by the following week.

Department of Education submission
Mr Thami Mseleku (Director General) made the presentation (see document).

Discussion
Ms Fubbs asked for the Department's view on the issue of double weighting of students five to 17 years of age and the school enrolment figures.

So as to expand on the issue raised by Ms Fubbs, Ms Mahlangu said that the main issue is the availability of data. Statistics South Africa has its own set of data which is the official data and the Department of Education would have different data, that is, enrolment figures. The concern that is always raised is that enrolment figures are not readily available earlier in the applicable year. The availability of such information would make decision and policy-making easier.

Mr Mseleku agreed that the availability of data is a major concern. This issue has been put before Cabinet a few years ago. Statistics South Africa is only now in the process of formulating policies relating to the kind of standards and information that Departments have to collect in order to inform national statistics. Part of the problem with education statistics is that for some reasons there are schools that inflate data. Schools inflate data to ensure that teachers are not redeployed to areas where they are needed most. At the moment it is not easy to validate some of the information supplied by the schools. Despite higher level of computerisation institutions of higher education still cannot give the exact enrolment figures until late in the year. This problem exists even in institutions for higher education. The "10 days return" data is not reliable until it has been scrutinised over time. The Department is trying to see if it cannot improve the standard of data collection and the reliability of such information.

With regard to the weighting of the students by the Financial and Fiscal Commission Mr Mseleku replied that the Department supported the idea largely because this does away with the penalisation one gets as a result of over age learners. The Department is trying to phase out over aged learners so that it could be sure of the age cohort it is dealing with. Part of the issue relates to the state's responsibility to provide free and compulsory education. Part of the weighting reflects the kinds of orientation the state would eventually need to have.

SALGA submission
Both Councilor Mvoko and Ms S Makotoko made the presentation (see document).

Ms Makotoko complained that Clause 8(2) would penalise municipalities. She asked National Treasury to clarify the clause.

Mr M Ndimande (Treasury) replied that Clause 8 is supposed to be in favour of municipalities. Clause 8(2) provides, amongst others, that where a public entity and relevant municipality fail to come into an agreement, the public entity and municipality must inform the National Treasury when such an agreement would be completed.

Ms Makotoko asked the Treasury to clarify what it has in mind regarding further conditions that might be imposed in terms of Clause 11(3).

Mr Ndimande said that conditions would be imposed only if the municipality had failed to comply with this provision. The concern is that if the municipality fails to produce a plan, one becomes concerned if the municipality would be able to implement the grant. One might start giving specific dates within which there has to be compliance.

Ms Makotoko noted that the Bill in Clause 13(1) seems to suggest that local government capacity building cannot be done without the consent of the National Treasury or the Department of Provincial and Local Government. She asked the Treasury to express its views on this.

Mr Ndimande replied that all conditional grants have a grant framework. Before there is a grant it is important to know what the department seeks to achieve with a particular grant. Hence the capacity building grant. The framework has to be made in consultation with the National Treasury because it has to accord with national policies.

Ms Makotoko felt that Clause 23 would penalise municipalities which cannot spend money allocated to them. She asked how the reallocation would be made.

Mr Ndimande replied that one cannot keep on transferring funds to a municipality if it cannot spend. There is a need to check and if there is under-spending, funds should be transferred to the district municipalities. If, for some reason, a municipality A is unable to implement a project and municipality B can, funds should be transferred to municipality B. This is especially the case when one knows that municipality B has an allocation in the following year for the same project. When municipality B gets the funds it would simply transfer them to municipality A. Allowing the rollover of funds every now and then leads to problems in the long run.

With regard to the requirement that funds should follow the transfer of functions or obligations in terms of Clause 27, Ms Makotoko said that SALGA is not sure how National Treasury is monitoring how this is happening.

Ms Makotoko asked if Clause 35 should not contain a clause allowing for the assessment of how the municipality failed to spend money instead of taking away from it. She felt that this clause would penalise municipalities which do not have capacity but should be able to access the funds.

Mr Ndimande replied that Clause 35 is only a direction to Department, whether or not they transferred a portion of a conditional grant, to report on the actual spending against such grant.

The Chairperson said that the Census has proved that people are moving from rural areas to urban areas. The allocation of funds has declined in favour of urban municipalities. A point has been made that equitable share much try and support municipalities which did not have good sources of revenue. She asked the National Treasury's comment on this issue.

Mr Ndimande agreed that people are moving to the more affluent municipalities. He said that the equitable share is in favour of the poor municipalities.

Councilor Mr Mvoko (SALGA) disagreed with Mr Ndimande. He felt that if equitable share was more in favour of poorer municipalities, one would not find a situation where poor municipalities receive less than their more affluent counterparts.

The Chairperson acknowledged that the issue of resource allocation is very important. She hoped that the Select Committee that would succeed the current committee would take the discussion on this issue further. This is important given that there are municipalities with little or no own source of revenue.

Drought Relief Adjustments Appropriation Bill: briefing
Mr Jaz Chaponda (Treasury Chief Director: Expenditure Planning) briefed the Committee on the Bill. He noted that the Disaster Management Act had been passed but the framework which sets down the actual implementation details in terms of what triggers what course of action has not yet been finalised. An amount of R250 million would be allocated towards drought relief in the current financial year (2003/04). A further amount of R500 Million has been allocated for the next financial year (2004/05) for additional relief. The Department of Social Development would give R900 per household to vulnerable groups. This process would be administered through NGOs and faith-based organisations.

Ms Mahlangu said that there are problems around the food parcels that the government is giving to people. People who are supposed to benefit from the food parcels are not getting them.

Mr Kolweni said that there will always be problems around the distribution of food parcels. This is more so because of the lack of strong consumer forums. He highlighted the need for procedures that underpin the implementation of the food parcel project.

There was no quorum in order to adopt this Bill.

Department of Social Development submission
Mr C Phakade (Chief Financial Officer) made the presentation. He focused on the division of revenue and the implications it has on the social development sector (see document).

Discussion

The Chairperson noted that the recommendations of the Department to the Committee say nothing about transitional arrangements for the delivery of social grants. If there are no plans to facilitate the transfer of functions there might be some problems.

The presenter replied that the main purpose is to improve the effectiveness of social grants administration and payment in the country. Currently there are nine fragmented and different systems and they do not comply to any norms or standards. They are characterised by inefficiency due lack of capacity and management systems. There has been a national debate on whether this is a concurrent function. The current government is looking at how to transfer staff and to manage existing contracts relating to the delivery of social grants. One option is to have the social assistance budget as a conditional grant over a year or until it is transferred to agencies once they are established and are fully operational.

Mr Ralane noted that the Department of Social Development cites the distribution of food parcels as one of its success. The reality is that some of the food parcels did not reach the intended beneficiaries. One wonders if there were plans relating to the distribution of the parcels.

Mr Phakade agreed that the distribution of food parcels was accompanied by problems.

Mr Kolweni asked if NGOs and faith-based organisations are better placed to distribute the food parcels though at times they lack accountability. He also asked if provinces have the necessary staff to ensure effective and efficient service delivery.

The presenter replied that such organisations are well suited for the function as they have a better understanding of the dynamics of the area where they are based. There are political dynamics on the ground that impact on the process. Provincial departments should ensure that the process is well co-ordinated

On the staffing issue, Mr Phakade replied that provinces have in many instances been expected to deliver with very limited resources. With food relief, the Department assisted with additional funds to ensure that people got deployed to provinces to ensure effective service delivery.

Ms Fubbs noted that the Department cited transport as one of the challenges they faced in delivering emergency food relief. She wondered if the challenge related to the shortage of vehicles or the fact that there were no roads. She also asked if the Department had any business plans to ensure smooth running of the food distribution process.

Mr Phakade replied that there were business plans but the monitoring mechanisms were not strong. There was also lack of capacity to deliver. This year more emphasis would be put on monitoring the impact and challenges faced in the delivery process.

A member asked if the nutritional content of the food parcels was checked.

The presenter replied that it was checked. The Department of Health assisted in checking the nutritional content of the food. No sub-standard food parcels were distributed to people.

The Chairperson asked the presenter to specify the nature of the technical problems that prevented some provinces from furnishing statistics on HIV/AIDS spending.

A member asked if there are measures to monitor the management of grants.

Mr Phakade replied that each conditional grant had specific conditions and monitoring mechanisms attached to it. The Division of Revenue Bill also has grant frameworks which would specify the monitoring mechanisms for each grant.

Department of Housing submission
Mr. A Vowda (Acting Director-General) presented (see document).

Mr Ralane said that in the past the Department had complained that there were too many conditions attached to conditional grants. He was surprised that the Department was now supporting the retention of conditions. He asked if the Department had the capacity to monitor compliance with the conditional grants.

The Chairperson showed concern that provincial expenditure on housing was very low. Various reasons are given for provinces failing to spend. It was becoming a major concern that every year provinces gave new reasons for under-spending or lack of delivery despite the fact that there are lots of informal settlements. She asked if the Department was doing anything about this and if it was working with other departments such as the Departments of Environmental Affairs and Tourism and Land Affairs.

The presenter agreed that informal settlements are growing. The problem of housing backlogs remains a major concern. There were 1.9 million households that live in informal settlements. 1.4 million are informal free standing informal settlements and the remainder of them are in backyards and in rental conditions. A large percentage of these people had already acquired a housing subsidy in some areas and would now not be able to access a housing subsidy if they move to other provinces. Hence the emergency housing project that tries to respond to this and recognises the distinction between the ten year option associated with a subsidy and a rental ten year. The question is how to look at this issue. The Department is very clear and the Minister has made pronouncements on this. The Department is beginning to comprehend the implications of a social housing program as distinct from a program that deals with secure tenure. 20 % of informal settlements are made up of first time urban dwellers. This poses a different concept of what the Department is dealing with. While the population has increased from the last Census by 10% the most significance feature is that household composition has declined from 4.2 to 3.8. this means that the increase in households has been 30%. This has imposed a backlog that was unexpected, never anticipated or projected and the Department was not prepared for this.

Ms Fubbs asked if only married people are eligible to get houses. One does not want a situation where people get married just for the sake of getting a house. She also asked if the Department had any monitoring mechanism around poor service delivery and if it is assisting in removing the blockages hindering service delivery.

Mr Vowda replied that there is a shift to female headed families. There is no need for a woman to get married in order to have access to housing.

Mr Kolweni noted that in order to resolve the issue of under-spending the Department decided to appoint consultants to provide capacity to provinces. He asked if this was enough and whether this option was imposed on provinces or jointly agreed upon. He indicated that in 2003 the Department had intended to use local government to speed up the building of houses and that the Department is now silent on this. Would the Department go ahead with this plan?

Mr Ralane had problems with some of the statistics presented by the Department. Statistics on current performance indicate the Free State province has spent 58% of total money available. Early this year in the Budget Council the percentage was 85. He wondered why the statistics are now different.

The Chairperson was concerned about the use of consultants. She had been under the impression that the Department was moving away from the usage of Consultants. She asked the Department to clarify what was happening.

Mr Vowda replied that the notion of demand is very complex and the Department has become more sophisticated in responding to such demands. One would begin to see successful housing projects. The Department together with provinces and local authorities was getting a better alignment to facilitate service delivery. The Department was equally responding to the question of building better human settlements. The quality of the houses and the built environment was equally important.

Mr Vowda did not want to dwell much on the answers or promises that were made by previous Directors General. There was a need for integrated development. Various provisions for integrated development exist in the Constitution and other legislation. The question is how the Department responds to the constitutional and legislative imperatives.

Over the last two years the Department had done a rigorous series of reviews and exercises that revealed the difficulties in housing. The Department was now much more capable of identifying the nature and causes of the difficulties. The Department has isolated what it thinks are the key issues and is now better placed to carry the process forward.

The meeting was adjourned.


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