Division of Revenue Amendment Bill: National Treasury briefing
17 November 2022
Chairperson: Ms D Baartman (DA)
The Budget Committee was briefed in a virtual meeting by National Treasury on the Division of Revenue Amendment (DORA) Bill. It was told that the Bill required consultation with Parliament and the Committee on any proposed changes to the conditional grant framework for the purposes of the correcting an error or omission.
The changes to the gazetted frameworks and allocations were explained in detail, and included grants for provincial roads maintenance, the Welisizwe rural bridges programme, education infrastructure, the municipal disaster response, and for informal settlements upgrading partnerships. Changes to previously gazetted municipal allocations included a change to the name of a municipality in the Eastern Cape, which was now called the Dr A B Xuma local municipality.
National Treasury explained that the Minister of Finance had tabled the Amendment Bill in October on the assumption that the allocations of funding had been effected correctly for the provinces affected by the April floods. National Treasury had subsequently been notified by the provincial treasury and National Disaster Management Centre that the allocations provided for the district municipalities were actually intended for local municipalities.
In the main budget speech, the Minister of Finance included provisions for pledging conditional grants. The clause specified the process that provinces were required to follow if they intended to pledge conditional grants, including the relevant consultation processes and the conditions that had to be complied with.
With the Committee’s recommendation, National Treasury would be able to change the allocations when the gazette was compiled, and ensure that the correct amounts were distributed to the correct local municipalities.
There were changes in the presentation which did not reflect in the Bill, including the equitable share and the 3% wage increase. From a procedural, and possibly legal point of view, the Committee could consider only what was presented to them, so the legal team had to assist with a recommendation for the matters to be amended.
The Chairperson welcomed the Committee and delegates from National and Provincial Treasury.
Format of the Budget Committee meeting
- Briefing by the NCOP Permanent Delegate and National Treasury on Division of Revenue Amendment Bill (S76) (NCOP).
- Public hearing on the Division of Revenue Amendment Bill (S76) (NCOP)
- Meeting suspended for 15 minutes
Consideration and adoption of the Negotiating Mandate Report on the Division of Revenue Amendment Bill (S76) (NCOP)
- Consideration and adoption of Draft Committee Minutes of the meeting held on 3 October 2022
- Resolutions and actions
National Treasury briefing
Mr Letsepa Pakkies, Director: Local Government Fiscal Framework, National Treasury (NT), informed the Committee that NT delegates had addressed the Committee earlier this year on the Division of Revenue Amendment (DORA) Bill. The Act was passed by Parliament and signed by the President in June 2022. Section 30(2) of the Public Finance Management Act (PFMA) stipulated that the national adjustments budget may cover unforeseeable economic and financial events affecting the fiscal targets set in the annual budget. The KZN flooding had been unforeseeable and resulted in unavoidable expenditure.
Disaster response funding
To allow for an adequate response to the April 2022 floods, funding was shifted between disaster grants in August 2022. R145 million was shifted from the Provincial Disaster Response Grant to the Municipal Disaster Response Grant, and R120 million was shifted from the Municipal Emergency Housing Grant to the Provincial Emergency Housing Grant.
To cater for disasters that may occur in the remaining months of the current financial year, R97 million was added to the Provincial Disaster Response Grant, and R350 million was added to Provincial Emergency Housing Grant.
For the reconstruction and rehabilitation of provincial infrastructure damaged by the December 2021 and April 2022 floods, R117 million was added to the Education Infrastructure Grant for the Eastern Cape and KwaZulu-Natal (KZN), and R1 billion was added to the Provincial Roads Maintenance Grant for the Eastern Cape, KZN and North West.
Protection and care of flood victims
R49 million was added to the Provincial Equitable Share (PES) to continue with the care and protection of April 2022 flood victims in shelters in KZN.
The Chairperson said that the Members did not receive the Bill, but had the ability to reference the pages in the Bill should they need clarification. She suggested that Mr Pakkies should indicate in the presentation when there was a reference to allocations for all the provinces, specifically to the Western Cape.
Mr Mandla Gobian, Senior Budget Analyst: National Treasury, said that an addition to provincial allocations had been made for the construction of the bridges as part of the Welisizwe Rural Bridges Programme. R389 million had been added to the Provincial Roads Maintenance Grant. It was for the construction of the modular steel bridges in the Eastern Cape (R308 million) and Limpopo (R81 million).
The Department of Public Works and Infrastructure (DPWI) had assessed the two provinces for the readiness of the construction of the bridges, and had spent the funds in the current financial year. The programme was conducted by the national DPWI. These bridges were constructed in rural areas to ensure that the community had access to schools and hospitals. The Western Cape would receive an amount of R954 737, shown as "equitable share, public wage."
Mr Sello Mashaba, Director: Conditional Grants and Monitoring, NT, gave context to the presentation on disaster response funding and explained the grants.
Conversion of disaster response grants
The two types of grants within local and provincial government were the Municipal Disaster Response and Provincial Emergency Housing Grants. The Department of Cooperative Governance and Traditional Affairs (COGTA) was responsible for the two types of grants. The Department of Human Settlements was responsible for the Municipal Emergency and Provincial Emergency Housing grant.
In the case of an emergency, funds were shifted from provincial to local government.
Additional funding for disaster response grants
This allowed for disasters that may occur within the financial year, and an amount.
Additional funding for disaster reconstruction and rehabilitation of the damages cost
Government had provided an amount of R3.3 billion to fund the infrastructure damaged or requiring rebuilding after flooding, as in the case of KZN.
Purchasing of land for relocation of flood victims
This fell under the Department of Human Settlements. R92 million had been allocated to the Informal Settlements Upgrading Partnership Grant to purchase land for the relocation of flood victims.
R1 million was rolled over in the Integrated National Electrification Programme Grant to fund 50 electrification connections.
R15 million was rolled over in the indirect Regional Bulk Infrastructure Grant to fund operational payments for the Vaal River Pollution remediation project.
This involved the movement of money into the current system, and was used for project preparation, planning and implementation, and challenges experienced during the project implementation.
Mr Mashaba said the various types of conditional grants were allocated to municipalities nationally, and were then separated into direct and indirect funding totalling R56.039 billion. R87 billion was allocated to the equitable share, and there was a R289.964 million adjustment to Western Cape municipalities.
Mr Pakkies explained the changes to gazette frameworks and allocations.
Provincial Roads Maintenance Grant
The grant framework was amended to allow spending to respond to the disaster that occurred in April 2022, and the spending on rural bridges under the Welisizwe Rural Bridges Programme.
Education infrastructure Grant and Municipal Disaster Response Grant
The grant framework was amended to allow spending to respond to the disasters that occurred in December and April 2022.
Informal Settlements Upgrading Partnership Grant for municipalities
The grant framework was amended to ring-fence funds to purchase identified land to relocate flood victims who had previously resided in informal settlements washed away by floods.
Changes to previously gazetted municipal allocations included a change in the name of a municipality in the Eastern Cape -- the Dr A B Xuma Local Municipality, as per the Gazette published in terms of section 12 of the Local Government Municipal Structures Act, on 30 May 2022.
Correction of errors in the Municipal Disaster Recovery Grant (MDRG) framework and allocations to municipalities
Mr Enoch Godongwana, Minister of Finance, had tabled the Amendment Bill on 26 October on the assumption that the allocation of funding had been effected correctly for the floods experienced in KZN and the Eastern Cape. National Treasury was subsequently notified by the Provincial Treasury and National Disaster Management Centre (NDMC) that the allocation provided for the district municipalities were funds intended for local municipalities. The funds must follow the function.
The Chairperson observed that there were changes in the presentation which were not reflected in the Bill. She asked for greater clarity on the changes. From a procedural, and possibly a legal view, the Committee could consider only what was presented to them. She requested Ms Waseemah Kamish-Achmat, the Procedural Officer, to consult with the rules regarding the legislation.
Mr R Mackenzie (DA) asked for clarity on the allocation of the funding for the bridges.
Ms N Nkondlo (ANC) asked about the process for the allocation of funding for the bridges in the two provinces, and why the Western Cape had not received funding. She asked for details on the scope of the projects allocated to the three districts for reconstruction.
Mr D America (DA) quoted the presenter, and said that the grant should be allocated to where the function was and resided with the municipalities. However, at the end of the presentation, he stated that the funds would be allocated to those municipalities. He asked for greater clarity on the allocation of the funds. He asked whether the R290 million was additional funding, new funds or shifted funds.
Mr Pakkies acknowledged that he might have confused the Committee in the presentation.
He said that in terms of slide 20 -- specifically page 39 of the Bill -- the allocation was made to two districts. There was miscommunication between National Treasury, Provincial Treasury and the Disaster Management Centre regarding allocating the funds to the municipalities and the districts. It had been brought to their attention that the amount of R289.964 million was intended for local municipalities. He requested the Committee allow National Treasury to make that amendment in the new amended allocations to the municipalities. Mr Pakkies gave context to five projects in Swellendam.
The Chairperson asked if the R289.964 million was a municipal disaster grant or an equitable share, whether the funds would be given to the district or local municipalities, and whether the amount would be an accounting shift.
Mr Pakkies agreed it was an accounting shift.
The Chairperson asked where the correction on the Bill on page 39 was. The amount of R289.964 million was reflected in the original Municipality Disaster Recovery Grant, at the end of the Western Cape Municipalities section, but she did not see the correction on the Bill.
Mr Pakkies replied that there was no correction on the Bill. However, the purpose of the meeting was to present and consult with the Committee to endorse the adjustments and allocate the amounts to the correct municipalities. Once a recommendation was obtained from the Committee, National Treasury would have a new table and start correcting the amounts.
The Chairperson pointed out that the three amounts making up the R298.964 million were allocated to the district municipalities, and were currently in the Bill. However, in the presentation to the Committee, the amount should be allocated to local municipalities, which was an error in the Bill. The Committee was requested to endorse a future correction that was not currently in the Bill.
Mr Pakkies acknowledged the Chairperson’s comments.
Dr Roy Havemann, Deputy Director-General (DDG): Fiscal and Economic Services, Western Cape Treasury, added that there had been internal consultations with the legal department and National Treasury, and confirmed that the changes would be corrected when it was in the Gazette, as the Bill was a draft.
The Chairperson commented that the changes were not in the gazetted Bill. She could not find any communication regarding the changes from the Office of the Speaker in the National Council of Provinces (NCOP). She asked Ms Kamish-Achmat to liaise with the legal team to obtain further advice so that the Committee could get clarity on the changes. In the interim, she requested Mr Pakkies to continue with the responses.
Mr Pakkies asked his team to continue with the responses.
Mr Mashaba said that in the case of the Emfuleni Local Municipality, R15 million was a rollover, as the funds could not be spent in the year they were allocated. The amount would be reflected in the following year's budget. Emfuleni municipality had been allocated R34 million for Regional Bulk Infrastructure Grant (RBIG) projects, and requested the NT to roll over R15 million. It was an indirect grant, which implied that the Department of Water and Sanitation (DWS) was responsible for the project. A committee had assessed the rollover funds, and which project it was earmarked for.
On the R290 million, this amount was allocated to the Western Cape district municipalities. New funds were also allocated to the Eastern Cape and KZNl municipalities affected by the disasters.
Mr Gobian explained the criteria used to follow the submissions. The criteria were set by the Department of Public Works and Infrastructure ((DPWI). The submissions were forwarded to the Department, and were followed by an assessment.
He undertook to provide written responses to the question on bridges.
Due to audio issues, Mr Gobian did not hear Mr Mackenzie's questions.
The Chairperson re-iterated Mr Mackenzie’s question on the assessment criteria for allocating funds for projects, particularly infrastructure. She referred to the Limpopo project of R81 million, and why the Western Cape had not received any funds.
Mr Mackenzie asked for greater clarity on the amount of R954 million reflected as equitable share, but not indicated in the Bill. He referred to the presentation slides 12 and 13, and asked for clarity on the allocation of funds for the bridges in Limpopo and Eastern Cape. He asked if other provinces did not apply for funding as well.
Mr Gobian replied that the R954 million would reflect in the Bill, as the Minister of Finance had announced in the budget speech. It was gazetted in section 6 of the Act and was published in the Gazette on 3 November.
Regarding the bridges, the two projects had been assessed and the funds were used in this financial year. Mr Gobian was unable to comment on which provinces had applied for funding.
He undertook to provide written responses to the Committee once he received communication from the DPWI.
Ms N Makamba-Botya (EFF) said she understood how the disaster management grant was allocated, and asked for a detailed report that had led to the determination of the R289 million allocated to the three municipalities
Ms C Murray (DA) asked for clarity on the process or methodology used in allocating funds to the provinces. She asked if challenges were experienced and the steps implemented to address the challenges. She asked if the allocation of funds was dependent on the outcome of audit results.
Mr America thanked the National Treasury delegates for explaining the Disaster Management Recovery Grant. He said that Swellendam in the Overberg area had suffered flood damage and received the funds for infrastructure without delay.
Mr G Brinkhuis (Al Jama-ah) asked if National Treasury distributed funds evenly to both wealthy and poorer municipalities.
Mr Pakkies responded to Ms Murray on the process and methodology, saying the Amendment Bill focused on disaster issues. In the case of a disaster, the province would conduct the assessments, which would be escalated to the national level with the necessary recommendations and approvals. Thereafter, National Treasury would make the necessary funds available. The payments were based on the capacity of the municipality to spend the funds within the financial year. If insufficient capacity was anticipated, the funds would be spread over two years.
On the challenges and proposed solutions, he said that in an emergency, funds were utilised immediately from the baseline by COGTA after an assessment had been conducted. The challenge they experienced was the time lag for payments concerning when the disaster occurred.
He referred to the wage negotiations, and said the Minister of Finance had announced the amount government could afford, which was the amount in the baseline for all the provinces. The Heads of Department of Provincial Treasuries would decide how the funds were allocated in each province. There was scope for further negotiations that had implications on the allocations, which could result in a trade-off by utilising unspent funds to an extent where budget cuts had been experienced.
The unions would sign off on the proposed public wage increased percentage.
He said more funds were allocated to poorer areas than wealthy areas. The City of Cape Town had high property values, so it had to generate its own revenue compared to a poorer area.
Equitable share grants were allocated in accordance with the size of the municipality.
Ms Nkondlo asked about the other mechanisms implemented by National Treasury to meet the alignment of allocations for the financial year. She asked if any new regulations were implemented, based on the additional funding for the disaster flood in KZN.
Mr Mackenzie asserted that the current funding model was ineffective, and asked if there was another model.
The Chairperson referred to the local government equitable share on page four of the Bill, and asked for greater clarity on why it was stated as "no adjustment." She pointed out that the amount of R954.737 million dealing with the 3% public wage increase was not in the Bill. She commented that it was the first time the Committee had heard of the errors, and bringing new matters to the Committee was unfair.
- A draft or proposed amendments in the negotiating mandate to the NCOP.
- The Committee should engage with the NCOP to table the amendments when they deal with the negotiating mandate.
She suggested that Mr Pakkies, Ms Kamish-Achmat and Ms Lizette Cloete, Senior Procedural Officer, and a provincial treasury representative, must obtain guidance from the legal team on the matter. She pointed out that it was unfair to expect the Committee to view the matters they had seen for the first time. It was fortunate that the negotiating mandate was on 21 November.
Ms Makamba Botya asked if funds were allocated to municipalities in distress due to fruitless expenses.
Mr Pakkies requested assistance from the provincial treasury to respond to the questions.
The Chairperson pointed out to Mr Pakkies that National Treasury was responsible for the Division of Revenue Bill, and it was inappropriate for provincial representatives to respond. She probed for answers from Mr Pakkies on the way forward, such as addressing procedural aspects of the amendments, draft amendments for the NCOP to consider, and amendments to be in the negotiating mandates, to enable the NCOP to draft its report.
Mr Pakkies noted the Chairperson's comment, and said he could not assist with the legal opinion.
Many questions required unpacking on the Disaster Management Act, as the Act spoke to what needed to be in place.
On disaster risk policy, National Treasury was currently drafting and adopting a risk policy.
One needed to conduct a review on the disaster risk management accounts and funds to prevent irregularities.
To enable municipalities, the private sector should participate in the discussions.
To deal with future disasters, there was a need to be ready to respond appropriately by investing in mitigation measures and adopting methods to provide funding without delay.
There was no differentiation in allocations of funds to distressed municipalities as three conditional grants were utilised for general purposes. Audit outcomes were not directly considered when allocations were distributed, but finances must be managed correctly for the allocations to be granted.
Mr Steven Kenyon, Chief Director: Local Government Public Finance, Western Cape Government,
said that for the Municipal Disaster Recovery Plan, R289.964 million had been allocated to Western Cape municipalities. The issue was whether the amount would be allocated to three districts or three local municipalities. When the provincial treasury reviewed the Bill, it was established that the district municipalities do not own the infrastructure. The three infrastructures that were damaged and needed to be repaired were owned by the local municipalities. Therefore, it was the responsibility of the local municipalities to spend money on repairs to the bridges and other damaged infrastructure. To avoid delays and complications, the money was transferred directly to the local municipalities that owned the projects, instead of transferring to the district municipalities.
He placed on record that the provincial treasury had initiated the request to NT to ascertain if there was a possibility for the correction. He confirmed that the provincial treasury had supported the request and consulted with colleagues from the provincial Disaster Management Centre for the funds to be afforded directly to the three local municipalities.
On procedural matters, he explained that the request was not for an amendment to the Bill. The corrections were to the draft gazette, therefore it did not require an amendment to the legislation. National Treasury did not need to include the gazette in the Bill. National Treasury was not allowed to make changes between the draft and the final gazette without consultation with Parliament. This was to promote transparency and fairness. He confirmed that there was no amendment to the Bill, but a change to what the Minister would gazette.
The Chairperson thanked Mr Kenyon for clarifying the grant funding, and asked for clarity on the adjustment of the equitable share of R954.737million which should be added for public wages, as the equitable share was part of the Bill.
Mr Gobian, clarified that the amount of R954.737 million was allocated for the public wage through the gazette and was not in the Bill. However, National Treasury had presented it as if the equitable share was in the Bill. The baseline would be increased for the Western Cape to incorporate the public wage.
The meeting suspended for 15 minutes to consider the way forward and procedural matters.
Proposals on the way forward
The Chairperson probed for proposals from the Committee on the way forward, and had her own proposal. She said that there was an indication that the disaster management grant could be corrected via the gazette. However, she was uncomfortable with the response regarding the equitable share regarding the public wages, as it was not enclosed in the Bill, which was usually the format. She recommended that the legal team assist with a recommendation for the matter to be amended either in a draft clause format, or alternatively that the NCOP amend the mandate.
She proposed that the meeting be postponed to Monday 21 November, from 8.30 to 9.30. She advised the political parties to submit their views to Ms Kamish-Achmat by 8.00 on Monday morning, as it would allow the NCOP sufficient time to analyse the mandate before their meeting on Monday afterwards, at 16.00.
The Chairperson put the following proposals for adoption:
- A 3% increase in the public wage.
- Amendment of the disaster management grant.
The proposal was supported by Ms Murray.
Ms Nkondlo asked the Chairperson to repeat the proposal.
The Chairperson explained the reasons for the proposal.
Ms Nkondlo said she did not have a problem with the proposal, but asked for greater clarity on the legal requirements, as the Bill had been gazetted and declared by the Minister of Finance. She did not see the reason for another meeting, as the National Treasury delegates had stated that the Bill had been declared.
The Chairperson replied that the conditional grant could be fixed via the gazette, but the legal team would have to advise the Committee if the equitable share that was part of the Bill should be written as a clause, or written in a particular way in the negotiating mandate for the NCOP to fix it.
Mr Havemann said that they offered legal services in the administration department. He was comfortable with the procedures followed by National Treasury in section 6 of the DORA. He suggested that the legal team meet with National Treasury and discuss the legal mechanisms. He was happy to facilitate the meeting.
The Chairperson acknowledged Mr Havemann’s suggestion, and pointed out that National Treasury would have to ensure that the changes made by the Committee were correct, as they affected the wages of the public employees and disaster management.
The Chairperson requested Ms Kamish-Achmat and Ms Cloete to submit the amended matters to the legal team for perusal. Thereafter, Mr Havemann would facilitate the process with the NT delegates and the legal team.
She asked the programming team to set up the online Committee meeting for Monday morning, and set a timeline of the close of business on 18 November for the legal to assist. The Committee would consult over the weekend and submit the proposal by 8.00 on Monday before meeting at 8.30.
Committee minutes were adopted.
The meeting was adjourned.
Baartman, Ms DM
America, Mr D
Brinkhuis, Mr G
Mackenzie, Mr R
Makamba-Botya, Ms N
Murray, Ms C
Nkondlo, Ms ND
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.