Division of Revenue A/B, Adjustments Appropriation Bill & Special Appropriation Bill: National Treasury briefing

Meeting report

The Chairperson asked Dr Mampho Modise, Head of Public Finance, National Treasury (NT), to decide the order of the bill presentations. He acknowledged the presence of Ms Malijeng Ngqaleni, Head of Intergovernmental Relations, National Treasury.

Ms Nqaleni said there would be three presentations covering each bill. She commented that the presentations were many, and that National Treasury had sent the presentations on time to the Committee to ensure that the Members had a good understanding of what the presentations would be about.

The first presentation would be led by Ms Wendy Fanoe, Chief Director: Intergovernmental Policy and Planning. The second presentation would be led by Ms Nompumelelo Radebe, Director: Public Finance. The third presentation would be led by Mr Duncan Pieterse, Head: Asset & Liability Management.

2022 Division of Revenue Amendment Bill 
Ms Fanoe said the Division of Revenue Amendment Bill (DORAB) tabled on 26 October 2022 contained an additional clause to allow for the pledging of conditional allocations, in-year adjustments to allocations, consistent with the limitations in S30 of the Public Finance Management Act (PFMA), and a request to correct some gazetted frameworks.

The main purpose of the DoRAB was to amend “Column A” of the DoRA schedules, which showed the allocation for the current year. The new “Column A” created by the DoRAB showed the original allocation, the adjustment(s) and the new allocation to maximise transparency in the adjustment process. “Column A” had been amended for schedules 1, 2, 4 (Part A), 5(Part B), 6 (Part B) and 7 (Parts A & B)

Summary of changes to provincial allocations 2022/23
 
The Equitable Share allocation was R560.757 million, and the adjusted allocation was R560.805 million.
The Agriculture, Land Reform and Rural Development allocation was R2 294 million and the adjusted allocation remained R2 294 million.
The Basic Education allocation was R23 008 million, and the adjusted allocation was R23 124 million. 
The Cooperative Governance allocation was R145 million, and the adjusted allocation was R97 million. 
The Health allocation wasR56 252 million, and there was no change. 
The Human Settlements allocation was R18 702 million, and the adjusted allocation was R19 172 million.
The Public Works and Infrastructure allocation was R858 million, and the adjusted allocation was R858 million.
The Sport, Arts and Culture allocation remained unchanged at R2 176 million. 
The Transport allocation was R18 347 million, and the adjusted allocation was R19 756 million.
 
Summary of changes to local government allocations 2022/2023

The direct transfers allocation was R47 983 million, and the adjusted allocation was R51 542 million.
The indirect transfers allocation was R8 055 million, and the adjusted allocation was R8 171 million.
The total allocation was R56 039 million, and the adjusted allocation was R59 713 million. 

Changes to gazetted frameworks and allocations 

The Provincial Roads Maintenance Grant framework was amended to allow for spending to respond to the flood disaster that had occurred in April 2022, and for spending on rural bridges under the Welisizwe rural bridges programme
 
The Education Infrastructure Grant and Municipal Disaster Response Grant frameworks were amended to allow for spending to respond to the disasters that occurred in December 2021 and April 2022
 
The Informal Settlements Upgrading Partnership Grant for Municipalities framework was amended to ring-fence funds for the purchase of identified land for the relocation of flood victims who previously resided in informal settlements that were washed by the floods
 
Changes to previously gazetted municipal allocations include a change in the name of a municipality

Ms Fanoe said the National Disaster Management Centre (NDMC) had requested changes to the in-year allocations for the Municipal Disaster Recovery Grant (MDRG) in the DoRAB tabled.

She said Section 7 of the 2022 Division of Revenue Act had been amended to allow for the pledging of provincial conditional grants. This followed an announcement made by the Minister of Finance in the 2022 Budget Speech. The clause specified the process that provinces were required to follow if they intended to pledge their conditional grants, including the relevant consultation processes and the conditions that must be complied with.
 
2023 Division of Revenue in the MTBPS

Over the 2023 medium term expenditure framework (MTEF), national government resources remain stagnant with little to no growth, provincial resources increase by an annual average rate of 2.8%, and local government resources increase by 6%. No spending reductions were proposed in the 2022 medium term budget policy statement (MTBPS).

Over the medium term, the provincial equitable share increases by an average annual rate of 2.4% and provincial conditional grants increase by 4.3%. The local government equitable share increases at an annual average rate of 7.8% and municipal conditional grants increase by 3.6 per cent
 
2023 MTEF changes to provincial allocations

Changes were made to the allocations of the provincial equitable share, conditional grants and the budget facility for infrastructure funding.

2023 MTEF changes to local government transfers

Additional allocations
R5.3 billion had been added to the local government equitable share over the MTEF to increase coverage for the provision of free basic services.
An additional R2.8 billion was allocated to the Municipal Disaster Recovery Grant to fund the repair and reconstruction of municipal infrastructure damaged by the April 2022 floods.

Reprioritisation
R8 million in 2024/25 and R13 million in 2025/26 were reprioritised from the Public Transport Network Grant to fund the Single Integrated Ticketing System rollout.

Budget Facility for Infrastructure (BFI) Rescheduling
There were additions of R105 million in 2023/24, R40 million in 2024/25 and R316 million in 2025/26 in the Public Transport Network Grant to align with the revised implementation plan and cash flow projections for the City of Cape Town’s MyCiTi public transport network. 
There was a reduction of R136 million in 2023/24 and an addition of R1 million in 2024/25 to the Regional Bulk Infrastructure Grant (RBIG) to align with the revised implementation plan and cash flow projections for George Municipality’s potable water security and remedial works project.

BFI: New allocations through direct conditional grants
R6.5 billion over the MTEF was allocated to several municipalities to fund municipal infrastructure projects approved through the sixth window of the BFI.

BFI: New allocations through the indirect RBIG
R8.1 billion over the MTEF was allocated to three municipalities through the indirect Regional Bulk Infrastructure Grant.

2022 Adjustments to the Appropriation Bill 
Ms Radebe introduced the 2022 Adjustments Appropriation Bill with a summary of the adjustments. The adjustments were:

Total unforeseeable and unavoidable expenditure - R6 395 441; 
Total funds earmarked in the 2022 Budget Speech - R500 000;
Total rollovers - R990 485;
Total declared unspent funds - R7 880 751.

She said all virements and shifts approved by the National Treasury in terms of section 43 of the PFMA, Treasury Regulation 6.3 and Section 5 of the Appropriation Act, 2022, were tabled in the Adjustments Appropriation Bill and detailed in the AENE chapter for each vote with accompanying motivations.

All virements and shifts requiring approval by Parliament were also tabled in the Adjustments Appropriation Bill and detailed in the adjusted estimates of national expenditure (AENE) chapter for each relevant vote, with accompanying motivations for consideration by Parliament. Virements were either marked with superscript *1 or *2 to show that either National Treasury or Parliamentary approval was required. *1 was usually for NT-approved virements, unless the department only had virements requiring Parliament approval. For virements requiring parliamentary approval, National Treasury consensus was obtained by the relevant department before inclusion in the Adjustments Appropriation Bill.

Special Appropriations Bill 2022
Mr Pieterse said the Minister of Finance introduced a Special Appropriation Bill proposing the following additional funding allocations in the 2022/23 fiscal year:
 
R3.378 billion for Denel SOC Limited for the implementation of its turnaround plan;
R23.736 billion for the South African National Roads Limited (SANRAL) for repayment of its maturing debt and debt-related obligations; and
R2.9 billion for Transnet SOC Limited for accelerating the repair and maintenance of locomotives.

Payment would be disbursed only when the Minister was satisfied that the required conditions had been met.

Discussion
Mr Z Mlenzana (ANC) asked if there was an impact assessment tool concerning the normal budget allocation. Did it affect the electorate, and if so, how? What was the impact of the consumer price index (CPI) on the inflation forecast for 2022? He noted that inflation had been revised to 6.7%, and asked what this meant for the ordinary man.

Was there a balance between the debt service costs and the overall expenditure? What was the impact of understanding debt service costs? He said funds were being borrowed but not spent accordingly or at all, despite the debt still having to be serviced. He referred to an issue concerning the provincial allocation, where only the Eastern Cape and Limpopo were prepared to receive it. He asked if the provinces deemed not ready would just not receive the allocation, or if assistance would be provided to ensure their readiness to receive what was due to them. How did National Treasury determine readiness?

How much was spent on the rehabilitation of Emfuleni Municipality, and in which financial year did the rehabilitation process start? Since 2012, how much has been spent on all the interventions implemented regarding Eskom? What was National Treasury’s (NT's) plan for assisting underperforming entities? He said his opinion was biased because he sat on the team that monitored the Auditor-General’s (AG's) performance. Concerning entities and municipalities that were unable to pay the AG, why did the NT not pay owed dues directly to the AG? This could be applied to those who owed Eskom.

Mr X Qayiso (ANC) said the assistance provided to state-owned entities (SOEs) such as Denel, Transnet and SANRAL was positive and indicated a state that seeks to play a developmental role. He said the assistance Eskom was getting was good, but it would be fair for the Committee to make demands. The presentation provided the Committee with advice on the budget. Compliance measures were implemented at Eskom that National Treasury was monitoring and National Treasury provided an indication that stricter measures would also be implemented. He asked what these additional stricter measures were, and what the loopholes were in terms of bailouts and expropriations for Eskom. He said bailouts were insufficient and an overhaul of the poor administration infrastructure was needed to ensure that the money given to Eskom was in safe hands. Eskom’s infrastructure had been decaying for the last ten years and they needed to ensure the money given to Eskom was put to good use. He asked what the gaps between the original measures and additional stricter measures were.

What was the issue with imposing taxes on multinational companies? Multinational companies had excess profits due to high-interest rates and a self-beneficial doctrine of retrenchment and resizing that was to the detriment of the poor. He noted the warning that interest rates posed a danger to economic stability, and asked what National Treasury’s take on this was. This matter needed to be looked at.

He referred to expanded disaster funds, and said it had been mentioned that special funds for disasters were available without waiting for the 2023 budget announcement. This provision was for incidents such as those in KwaZulu-Natal (KZN) and the Eastern Cape. He asked if a funds allocation for Jagersfontein in the Free State had been made, as there was no indication of this in the presentation. He did not know where the allocation could come from -- perhaps the municipal grant or provincial disaster fund, but an allocation needed to be made, as this was a disaster.

Mr A Sarupen (DA) asked which areas of the budget were suffering due to the bailouts in terms of the MTBPS. What sacrifices had National Treasury made? What requests to shore up bailouts had they received from government departments? Regarding the statements on the MTBPS and budget overview and the budget surplus, he asked about shifting Eskom’s debts to government’s books and how this would be structured. Would it start next year and be done in one go, or over several years.

He commented that the budget surpluses resulted from the global commodities boom in the post-Covid environment. He asked if the NT thought their projections were accurate in the medium term, considering a commodities slowdown was likely to hit the fiscus. He said the conditions for bailouts given to entities, particularly Denel, were not strong enough. The finalisation of a memorandum of cooperation was not an indication of good management or the submission of quarterly reports. What was National Treasury doing with these reports? Various conditions had been imposed on SOEs, but with little to no effect. These compliance conditions were easy to meet, but had nothing to do with the actual management of the SOEs' performance. He asked if the NT was looking at tightening the conditions, particularly considering they were now taking on Eskom’s debt. He commented on Eskom’s procurement process and how it was a victim of state capture. Would there be closer supervision over these entity bailouts and if not, what was the reason?

Mr O Mathafa (ANC) asked what measures were in place to ensure national strategic objectives were not lost due to the budget adjustments. Was there a possibility virements could move away from the President’s injunction? Was it possible to monitor the implementation of the budget to ensure the objectives -- specifically the Economic Reconstruction and Recovery Plan (ERRP) -- were protected? The ERRP was the major objective, and as part of it, the President had committed to an employment stimulus programme. Regarding the adjusted estimates of national expenditure, departments such as Basic Education, Higher Education and Training, and Labour always got approval for the shifting of funds originally budgeted for filling vacancies. He said the movement of funds meant for the filing of vacancies was for one of two reasons -- the budget ceiling cap came into play, or poor planning.

He expressed concern that the main reason cited by departments for the failure to meet targets was the internal lack of capacity, but at the same time, there were unfilled vacancies. What was National Treasury’s view on issues concerning vacancies? The three departments mentioned were just the ones he had picked up, but other departments struggled to fill vacancies despite complaining about an internal capacity shortage.

He said National Treasury had challenges with its internal financial management system. The adjustments expenditure showed a virement of R175 million which was budgeted for this system. Was this an indication of difficulties in implementing the system, or were there other reasons for the movement of such a huge amount? Concerning the R13 million moved from the Development Bank of Southern Africa (DBSA) to fund the Financial Intermediary Fund, he asked why this virement was. The DBSA was one of the institutions struggling with financial constraints, so taking money from the DBSA was the last thing the Committee thought would be allowed.

Commenting on the strength of the conditions set for Denel, he said the Committee had been told that R5 billion would be required. Government would capacitate R3.4 billion, and R1.8 billion would be raised by Denel. He read a condition set in the preconditions which said “submission of strategic equity partner”. If R5 billion was required and they had automatically budgeted for R5 billion but still needed an equity partner, were they not anticipating that the equity partner would bring equity? Was the condition forward-looking, and the equity would be brought in in the future? His view was that if an equity partner was needed, there had to be an amount of equity they were bringing to the partnership agreement.

The Chairperson thanked National Treasury for its presentation and said it had been very informative and comprehensive. He welcomed the additional allocation of about R48.9 billion to the division of revenue, which had been done without borrowing and within the first fiscal framework. The first fiscal framework had improved, as shown by the improved debt-to-GDP ratio and the deficit. The additional allocation allowed the government to intervene in several places, especially concerning disasters and the recapitalisation of SOEs. Without the allocation, these events would have been a bit disastrous for the budget.

Regarding the adjustments, debt service costs had increased and there was no further borrowing -- was he right to say this was a result of the South African Reserve Bank (SARB) increasing the interest rate? He said tariffs were not classified as unavoidable and unforeseen. Was he correct in thinking changes or increases in tariffs were not classified as unavoidable and unforeseen, because if there was an increase in tariffs -- which he was not aware of -- the increase should be seen as unavoidable or unforeseen?

The Chairperson asked if the rollover of funds was from the previous financial year, 2021/22 or 2022/23. He said youth unemployment was the country’s most serious challenge, and asked why the Presidential Employment Initiative had been rolled over. Was it related to the failure of departments to fill vacancies despite their effect on service delivery, and could this be avoided in the future? A few people could have been hired, but vacancies were not filled. What was the reason for this?

R 1.769 billion or R2.9 billion was moved from the Department of Social Development (DSD) to Transnet. The Chairperson asked how this was justifiable, considering the high poverty levels in the country. Why were the funds not moved to local government, given the issues faced by municipalities? SOE bailouts were good and the reasons for the recapitalisation of Denel and SANRAL were known, but what were the reasons for the bailing out of Transnet? What events had led to the bailout of Transnet that required the movement of funds from the DSD and a special appropriation bill dealing with Transnet? The financial outcomes of the bailouts were important, but it was also important to have a performance target. For example, with Eskom the performance target of the bailout was a reliable electricity supply. With Transnet, it was a possible increase in the freight carried. He asked what the bailout performance target was for other SOEs.

The Chairperson said the Committee understood that the National Treasury delegates were just messengers, and that if there were any questions they could not adequately respond to, a written response could be submitted to the Committee.

National Treasury's response
Dr Modise said they were not accounting officers of the National Treasury, and therefore could not respond to issues concerning the Integrated Financial Management System (IFMS).

The Chairperson interjected, and said that Dr Modise and her team in the meeting represented the Minister, the Deputy Minister and the Director-General (DG) of National Treasury. There had been engagements with the DG and the Committee that had addressed the IFMS. As a general rule, responses to questions they could not respond would have to be submitted in writing due to the Committee’s programme constraints.

Dr Modise said that would be in order.

She said inflation was a concern that National Treasury considered as it impacted many spending items, such as social grants and medical expenses in health. Most spending items were monitored and adjusted for inflation in the next MTBPS or budget cycle. Spending that had exchange rate implications was monitored, especially for departments such as the Department of International Relations and Cooperation (DIRCO) and the National Treasury. If there was a significant depreciation in the exchange rate, considerations were made for additional funding. The SARB mandate was to ensure that inflation was kept under control and the value of the currency was protected. Whatever decision was made by the SARB to meet this mandate, National Treasury supported it. The SARB was independent and had a team that dealt with inflation. National Treasury considered the implications of increased inflation or interest rates on spending items, the cost of borrowing and interest rates, and Mr Pieterse would elaborate further.

National Treasury struggled with the budget impacts. They looked at each department's budget and strategic plans, and funds were allocated on this basis. They had noticed departments struggling to allocate funds for new and old projects. These departments cited various reasons for their underspending. It was difficult for National Treasury to ensure all the allocated funds were spent. There were different types of underspending. There was underspending due to system efficiencies. An example of this was the budget for social development, where the DSD had intensified its criteria for the R350 grant to ensure only deserving applicants were successful. Banks across the board had been contacted to conduct an income test to check if persons with multiple bank accounts received income. If an income above the food poverty line was shown to be received, the application would be unsuccessful. The reason for the DSD underspending was not due to National Treasury’s disregard for poverty, but rather the intensified criteria for the grant that ensured only deserving applicants were approved.

Another measure introduced was that recipients had to reapply for the grant every three months. This was not to make it difficult for people to access the grant, but to ensure that recipients who had become employed stopped receiving it because the grant was an unemployment initiative. The stricter criteria meant fewer people were receiving the grant. These were the reasons for the underspending in the DSD.

Virements, specifically those dealing with compensation, were a concern for National Treasury, not because they wanted to make it difficult for departments to fill vacancies. The reason was to enable departments to pay for leave gratuities for those exiting. These payments were not classified under the compensation of employees, but under transfers and subsidies. The virements related to compensation were for these payments. Dr Modise said the reason that virements over 8% or more of the allocated budget required approval from Parliament, and the strict conditions for virements were because National Treasury did not want departments to shift significant amounts of money from strategic areas to areas that were seen as not strategic. Bringing virements to Parliament ensured an assessment was done to determine that the virement was critical and would not impact the department’s strategic focus or delivery of objectives. National Treasury managed the virements and made sure they considered their impact on the projects to which the funds were allocated when approving them, or supporting Parliament’s approval of them.

Dr Modise said the rollovers were for the 2021/2022 financial year, and there were two types of rollovers. The first was when commitments such as invoices had been finalised but the department could not pay them in the previous year. National Treasury looked at the Presidential Employment Intervention and had proposed unspent funds allocated to this project be rolled over. Departments cited the reason for funds being unspent was because their processes were not finalised and ready for implementation. Once the Departments had started implementation, it was easier for National Treasury to allow for the rollover of funds. These rollovers were in addition to the funds allocated to departments for the current year. The rollovers were to ensure the implementation of the project was fast-tracked.

She said there was an impact on debt because when underspending was picked up during the year; some departments managed to spend the money in the remaining part of the year or during the last quarter. There were other departments, however, that would be able to spend the funds. When the adjustments to appropriations were done, the potential underspending and unspent funds declared back into the National Revenue Fund (NRF) were considered. Doing the adjustments in the MTBPS made it easier to determine how much needed to be borrowed and what the impact would be on debt servicing costs.

A big issue was the intergovernmental debt owed at all levels of government, not just the AG and Eskom, and this issue needed to be resolved. There had been discussions with the Auditor-General, and it was determined the AG had to ensure that services provided to municipalities or government departments were funded. National Treasury did not allocate funding to AG for full audit costs. National Treasury advised that before commencing an audit, the AG needed to draw up a memorandum of agreement or a contract with the entity or department to ensure payment. If the AG discovered additional work that needed to be done during the audit, the original contract would have to be revised. This was to avoid disputes when payments needed to be made. The conversations on how to deal with this were going to be helpful. National Treasury had tried to enforce a 30-day payment rule, but the law dictated that the accounting officer was responsible for ensuring proper payment.

Mr Pieterse said the arrears due to Eskom would be part of the final proposal and package that would be tabled, as indicated by the Minister at the time of the budget. The challenge of Eskom’s poor administrative infrastructure and its need for an overhaul would be included in the final package, as well as other challenges faced by Eskom. The Eskom problem required a holistic approach to ensure the entity became sustainable.

Regarding National Treasury taking over Eskom’s debt, there were various options with their own costs and benefits on the table. These options included taking over the debt all at once, over a period of time, or when Eskom had met certain conditions. This would be finalised between now and the budget announcement. Discussions between Eskom and their lenders were underway.

Regarding the feasibility of fiscal targets given the expected commodity price slow down, National Treasury did not assume commodity prices' benefits to the revenue fund would continue beyond next year, and therefore considered that least from a physical target perspective, they were not being overly optimistic. However, should the strong commodity prices continue, that would provide a potential positive surprise as an upside risk, but it was certainly not a baseline.

The debt services cost was a function of the interest paid across short-term instruments such as National Treasury bills, and medium-term and long-term instruments such as bonds issued for 20 to 30 years. However, the SARB’s changes to the repo rate would impact short-term interest rates. The medium and long-term interest rates were driven by other factors like long-running inflation dynamics, the sovereign risk premium, and the interest rates or risk-free rates which were international interest rates. Although there was a relationship between the repo rate of the SARB and the interest burden, debt service costs were one part of the equation. The long-term drivers of interest rates were structural growth and fiscal issues.

He said the reasons for Transnet’s bailout were because they had experienced several shocks in the past year, which included flood damage. National Treasury was trying to help Transnet in a targeted way to overcome their operational challenges to support their financial improvement and minimise future risks Transnet could impose on the fiscus.

Mr Ravesh Rajlal, Chief Director: Sectoral Oversight, National Treasury, said the Eskom bailout from 2008 amounted to R246 billion. A R230 billion support package was approved in 2019, of which R130 billion had been dispersed. In terms of the conditions, the process of strengthening conditions was underway. Reporting would ensure the turnaround plan levers were monitored and achieved.

He said National Treasury was looking for Denel to share their strategic equity partnership, which could be at various levels. This was important, because it could take Denel to the next level in the order pipeline. The support that would currently be provided would be augmented by R1.8 billion. This would help Denel to achieve a R12 billion order pipeline. National Treasury also wanted to see how Denel could survive in the future without government support, but by including a strategic equity partnership strategy. This strategy would be monitored monthly.

Much more could be done to strengthen Transnet’s key performance indicators, so National Treasury was leading an independent review of the port and rail operations, where the outcome would be used to look at operational efficiency and areas that needed improvement. The review was to ensure NT played a role in the shareholder compact, and that the review findings were imposed on the compact.

Ms Ngqaleni said the question concerning the impact assessment tool regarding the budget and its effect on the electorate lined up with the question concerning measuring the budget performance to ensure strategic objectives were met. The Department of Monitoring and Evaluation oversaw the medium-term strategic framework that outlined the priorities, objectives and indicators over the five-year electoral cycle. Performance information was coordinated mid-year in the current five-year strategic framework cycle, and it would be useful to invite them to reflect on the information that was coordinated on performance across the board. The performance would be reflected in each of the votes responsible for each outcome.

She referred to the allocations made for rural bridges, where funds had been allocated to Limpopo and the Eastern Cape, but not other provinces. The state of readiness was determined by when the project was ready for implementation. Implementing agents such as the Department of Public Works (DPW) and Infrastructure South Africa (ISA) were responsible for ensuring that projects were ready and for determining the state of readiness. She understood that work was already being done by the army in these areas. It was also indicated that R3.8 billion had been allocated over three years for other bridges that would cut across other provinces in the medium term. The DPW was working on ensuring other provinces were ready to absorb the funds allocated for the next year.

She asked if National Treasury could compile a report on how much had been spent on the Emfuleni Municipality, as she did not have the numbers on hand. There had been significant delays in addressing the problem. Allocations for disasters were made from various allocation areas reflected in various grants and adjustments. Allocations were made through relevant votes and grants.

The events in Jagersfontein, Free State, had been declared a disaster, and an application had been made to the National Disaster Agency. The application was being processed by the Natural Disaster Management Committee (NDMC). Additional funds were also being made available through an adjustment to ensure the grant had funding. This meant the allocation would be available through that process. The application was therefore in the system, although there were delays in the process of declaring and applying the submissions.

Mr Jan Hattingh, Chief Director: Local Government Budget Analysis, National Treasury, responded to the question related to the return of R2 billion to the fiscus, and said the R2 billion pencilled in was due to two types of rollovers. The first was where funds had not left the National Revenue Fund (NRF) and were subject to national rollover processes. The second was where funds had left the NRF. This privilege applied to the provincial environment, relative to the local environment, which meant funds were transferred to the municipality. National Treasury had a very comprehensive process outlined in the Division of Revenue Act (DORA). Every year, it communicated with municipalities the rollover criteria they needed to meet through the issued budget circular. National Treasury considered rollover requests by engaging with the provincial treasuries and sector departments responsible for grant management. The legislation stated that NT would consider the request for a rollover if there was a legitimate commitment, which meant there was a tender or they had actioned it. Once this process was concluded and in the last cycle, National Treasury advised municipalities on 19 October of the outcome of the process.

The second process concerned municipalities that declared unspent funds and had not asked for permission. This process entailed working through their financial statements to determine if the disclosed underspending for the grants was correct, and if the cash was in the bank to finance the rollover request. If there was no cash or performance, National Treasury would do what the law suggested, which was that it had to advise the municipalities to surrender the unspent funds to the NRF. This was a comprehensive process, and NT tried to conclude it in time for the next equitable share. Whether the unspent R2 billion could be used to augment or finance challenges such as infrastructure, was something that had not been explored.

The rules for rollovers were strictly applied by National Treasury, as per the regulations. In the broader scheme of things, if the equitable share was about R54 billion on average and in the end, underspending amounting to R2 billion may not be problematic. However, National Treasury understood what the Committee was saying about the shortfall and how it could deal with several other challenges in local government. They had not convinced the budget office and public finance team to rechannel the funds as a package to reduce the cost of borrowing and financing. National Treasury had disclosed this issue so there was transparency with the Committee.

Ms Radebe said the DBSA managed the infrastructure fund, and the DBSA virement was from operational cost savings in the fund. The arrangement between National Treasury and the DBSA was that operations of the fund were split 50/50. National Treasury therefore allocated 50% of what was transferred through it to the DBSA. The current year's operational cost of the infrastructure fund had been slightly overestimated, but there was a bit of saving because the actual cost was now known. These funds were shifted from the DBSA, but not taken away from the resources that the DBSA uses for their operations. The DBSA did not receive an allocation from National Treasury.

Tariff increases were not seen as unforeseeable or unavoidable because, with most price increases and tariff adjustments, communication was made in advance. This meant this process could be manned as part of the budget process, so they were not truly unforeseen. This was to the extent that there could be other adjustments during the year which were dealt with by departments through reprioritisation of their existing resources and, if necessary, through the virement process. Reprioritisation would, for example, deal with fluctuations in the exchange rate or the value of the rand, where more needed to be paid than what was budgeted. This was the reason for it not being unforeseen or unavoidable.

The Chairperson thanked National Treasury for their presentation and the comprehensive responses to issues raised by the Committee.

Committee matters

Adoption of minutes

The Committee moved to adopt the minutes of 21 September and 27 October, with corrections. It adopted the minutes of 12 October without corrections.

Committee programme

The Chairperson said the programme consisted of finalising the three bills in front of the Committee. This included inviting stakeholders to comment, starting with the Division of Revenue Bill and then the Special Appropriations Bill.

The Committee adopted the programme.

Announcements

The Chairperson asked the Committee Secretary, Mr Darrin Arends, if there were any announcements.

Mr Arends said he had no announcements. The next meeting would be on Tuesday, when a briefing would be received from the Financial and Fiscal Commission (FFC) about the three bills that were presented today.

The Chairperson asked the Committee Secretary to share with the Committee the status of the study tour, as there have been many developments since the last meeting.

Mr Arends said he had sent an email to indicate the status of the tour, but in summary, Singapore was in recess in December and South Korea would be able to host the Committee from 5 to 9 December. They were now waiting for approval from the offices of the House Chair and the Chief Whip, as permission was required to travel because the proposed dates were during the constituency period. He would inform the Committee of any other developments.

The Chairperson said it was all systems go -- some processes just needed to be followed. As he had spoken to the House Chair, there seemed no issue. He asked if the Committee had questions regarding this matter.

There were no questions.

The Chairperson said the meeting had been informative and the issues raised by the Committee were those that needed to be dealt with when engagements with National Treasury and various other departments on the different bills took place.

The meeting was adjourned.