Division of Revenue Bill; Second Adjustments A/B & Foreign Exchange Contingency Reserve Account Defrayal A/B: National Treasury briefing

Meeting report

Opening remarks

The Chairperson welcomed everyone to the meeting and highlighted that the Minister of Finance presented the Division of Revenue Bill, Second Adjustments Amendment Bill, and the Gold and Foreign Exchange Contingency Reserve Account Defrayal Amendment Bill. As such, Members would be able to make comments and ask questions about the bills.

He expressed that it was problematic when the presentation documents were not provided before a meeting occurred, and it made it difficult to think about a presentation when the documents were not received. He stated that this needs to be rectified when the new administration comes into power.

Briefing by National Treasury on the 2024 Division of Revenue Bill

Ms Malijeng Ngqaleni, Deputy Director-General: Intergovernmental Relations, National Treasury, highlighted the contents of the presentation such as the division of revenue between the three spheres of government, the fiscal framework, the amendments that have been proposed, budget reviews, and recommendations.

Ms Wendy Fanoe, Chief Director: Intergovernmental Policy and Planning, National Treasury, proceeded with speaking about the division of revenue. She stated that the Medium-Term Expenditure Framework (MTEF) for the local government sphere grew by 5.2%, for provinces, it grew by 3.8%, and for the national departments, the growth stood at 2.6%. She mentioned that in the local government, the equitable shares had grown the fastest, thereafter, the fuel levy replaced the RSC levies that used to go to metropolitan municipalities and these had been replaced by the sharing of the general fuel levy. In terms of the provinces, the equitable share grew at almost the same rate as the provinces. With the national government, she mentioned that there was a slight increase in indirect transfers to provinces and a slight decrease in local government indirect transfers.

Regarding the division of revenue for 2024/2025, local government was allocated 9.7%, provincial governments were allocated 41.7% and the national government was allocated 48.5%. Ms Fanoe clarified that the division of revenue does not consider revenues raised by the municipalities such as those obtained through property rates. The division of revenue including provincial and municipal revenue for 2022/2023, was 39% for the national government, 33% for provinces, and 28% for local government.

Mr Bongani Daka, Intergovernmental Policy and Planning, National Treasury, addressed matters related to provincial transfers for the 2024 MTEF, indicating that the total transfers for provinces were around R729 billion, accounting for 97% of provincial revenue for 2024/25. Provincial equitable share grew at an average annual growth rate of 3.9% which was at R600 billion. He also stated that there were changes to the provincial transfers, including a combination of reductions and additional allocations to the equitable shares. There were also additional allocations to increase wages in areas such as education and health.

Further, he stated that by the end of 2023, Statistics South Africa had not yet released their official mid-year population estimates and that the anticipated official release of the 2022 census was used. Mr Daka explained that the economic activity components used the Gross Domestic Product (GDP) data used in the 2023 MTEF. He mentioned that the technical updates to the provincial equitable share formula for the year 2024 MTEF include technical updates to all components with the most recent data, where possible, and a continuation of phasing-in changes to health components resulting from the Provincial Equitable Share (PES) review.

(See attached for further details)

Mr Daka mentioned that there needed to be reductions made to fiscal pressures and thus the provincial equitable share was reduced by R19.6 billion in 2024/25, R20.6 billion in 2025/26, and R21.3 billion in 2026/27. The Medium-Term Budget Policy Statement (MTBPS) stated that R68 billion would be allocated to cover the carry-through cost of the 2023 public-service wage agreement for education and health. He mentioned that R3.9 billion had been shifted to conditional grants in the education and health sectors to ensure that people who paid for these conditional grants also received their money. A further R37 billion was also allocated to education and health to the provincial equitable share over the MTEF. There were also changes to the provincial grants which were reduced by R26.8 billion. An amount of R1.1 billion had been previously allocated to the Early Childhood Development (ECD) grant to pilot a nutrition support programme. However, these funds were then reprioritised to the national government and the national government would implement a result-based service delivery model. The private sector would co-fund this service delivery model. He clarified that no allocation of any of the provinces was affected by this reprioritisation.

He reported that R737 million had been shifted from the National Health Insurance (NHI) Grant to the National Tertiary Services Grant to allow for the funding of oncology services. Through the Budget Facility for Infrastructure (BFI), provisional funding was allocated to the Western Cape Rapid School Build Programme. This was conditional on the Western Cape as the province needed to meet certain conditions. If these are met, the funding will flow through the adjustment budget.

Mr Letsepa Pakkies, Director: Local Government Fiscal Framework, National Treasury, gave a presentation on the local government transfers for the 2024 MTEF. He mentioned that transfers to local government account for 9.8% of the nationally raised revenue, and local government transfers showed healthy growth. He mentioned that the local government's equitable share grew at an annual rate of 6.1% over the MTEF.

For the 2024/2025 period, close to R53 billion was allocated to conditional grants, and other conditional grants amounted to R177 393 billion. Within the local government equitable share bracket, a formula was used to ensure fairness in the distribution of funds to all municipalities. Using this formula, there had been an increase in bulk water of 10.8%. There also had been an update in the average of the multi-year price determination. This formula also funds around 11.2 million poor households.

Mr Pakkies stated that R6.9 billion had been allocated to municipalities to assist with administration costs and R10.4 billion had already been allocated to community services. Both costs are allocated to poorer areas and not more affluent areas.

There have been reductions of R5.1 billion proposed to the general fuel levy, and further reductions have been made to the Integrated National Electrification Programme (INEP), the Municipal Disaster Response Grant, and the Municipal System's Improvement. For funds to be made available for other government priorities, reductions have been made in some municipal conditional grants over the 2024 MTEF period. Some of the reductions made were as follows; a reduction of R3.5 billion to the Integrated National Electrification Programme (Eskom) Grant and a reduction of R852 million to the indirect component of the regional bulk infrastructure grant.

Mr Pakkies also spoke about the conversions made, such as R58 million in 2024/25 that was converted from the direct component to the indirect component, and R587 million from the direct component of the Regional Bulk Infrastructure Grant (RBIG) which was converted to the indirect component. Importantly, R1.5 billion was shifted to the Municipal Disaster Recovery Grant (MDRG) to fund repairing and recovering municipal infrastructure damaged by disasters. An additional R2 billion was shifted to fund the new Smart Meters Grant baseline. Finally, R650 million was added in 2024/25 to the Neighbourhood Partnership Development Grant to fund the Cities Public Employment Programme.

He went on to address the introduction of the Smart Meters Grant which would focus on the municipal debt relief programme. This will create accurate and timely billing and better overall management of the electricity/water business through improved system integration, control, and sustainable electricity/water operations towards efficient trading services that are cost-reflective and self-sustainable.

Moving on to the Urban Trading Service, he stated that there has been a decline in services and a loss of management and skills. There had also been leadership challenges and poor incentives to motivate good performance. National Treasury was working with various stakeholders to try to improve services to communities while also creating incentives to improve current performance, and this programme will begin in 2025/2026. The proposed funding initiative would come from both the private sector as well as from government.

Use of results from the Department of Water and Sanitation's (DWS)’s Watch Reports in the prioritisation of water and sanitation projects was funded from general purpose grants such as the Urban Settlements Development Grant (USDG), Integrated Urban Development Grant (IUDG) and the Municipal Infrastructure Grant (MIG). From 2024/25, municipalities will be required to ensure that the results of the Green Drop, Blue Drop, and No Drop assessments are considered in the planning and prioritisation of projects.

Ms Fanoe spoke about the changes that had been made to the Division of Revenue Bill, highlighting that in Section 10 of the Bill, the problem addressed the transferring officers of Schedule 6 allocations responsible for monitoring indirect grants and that this applied to both municipal and provincial grants. In sub-clause five, the revision was to include Schedule 6 allocation to clarify that, like Schedule 5 allocations, the transferring officer of a Schedule 6 allocation must monitor financial and non-financial performance on programmes funded by the allocation. Sub-section 6 (a) now includes planned expenditure for each year of the MTEF from the Informal Settlements Upgrading Partnership Grant (ISUPG). Section 14 of the Bill addresses the issues in terms of duties related to annual financial statements and annual reports for 2024/25. The amendment requires that the annual reports of national departments responsible for transferring an allocation in Schedule 4, 5, or 7 indicate the systems used to monitor compliance with the Act. Section 16 of the Bill clarifies when changes come into effect. This means that the date on which a notice is published is when the notice becomes operational.

Ms Fanoe then spoke about the conversions of allocations administered by the municipalities, mentioning that provincial governments can monitor performance, and National Treasury can make informed decisions. Section 25 of the Bill addresses when funds can be transferred when a disaster occurs. Funds can be transferred from the day on which the disaster has occurred. Finally, Schedule 6 of the Bill was updated to include a new Smart Meters Grant to fund the installation of bi-directional smart metering systems in municipalities.

(See attached for further details)

Briefing on the 2023/24 Second Adjustments Appropriation Bill

Dr Mampho Modise, Deputy Director General: Public Finance, National Treasury, stated that following the October 2023 budget, some departments were unable to absorb the full cost reductions, but some could absorb the budget reductions and identify areas where reductions were lower than expected. Public Finance decided to assess whether funds could be transferred to these departments and then propose to Parliament whether to make these allocations. The Department of Cooperative Governance (DCoG) had been identified as a department whose budget could be adjusted. The amount which could be adjusted was R400 million due to a contract that had not been finalised on time with the new implementing agents. The Department of Public Works (DPW) was also identified as another department whose budget could be adjusted. This department’s allocation reduction was R70 million due to savings. She then went on to state the respective departments that had been allocated funding in terms of the Adjustment’s Appropriation Bill. These funds had been allocated due to the cost of the Ministry of Electricity for the 2023/2024 financial year. The second part was the E-Cabinet system and this was where the presidency would have to put Cabinet’s system online. This means that R50 million will go to the Ministry of Electricity and the remaining R20 million will go to the E-Cabinet system.

What also needed to be determined was whether the Electoral Commission of South Africa (IEC) had been allocated enough funding so that there was no compromise in the upcoming elections. One of the proposals was whether an allocation of R250 million could be allocated to the IEC. Additionally, R200 million has been reallocated to increase Political Party Funding allocations.

Dr Modise spoke about the Department of International Relations and Cooperation (DIRCO) and whether it has sufficient funds to handle exchange rate depreciation. What also needed to be looked at was whether DIRCO could be compensated. The department was partially compensated and despite additional allocation, the exchange rate depreciation placed pressure on the department. An additional R80 million had been proposed to be allocated to the department.

Moving to the Public Service Commission (PSC), a proposal had been made that R12 million be allocated for the compensation of employees.

In the Public Works and Infrastructure department there was underspending which was identified within three programmes, namely; administration for employee compensation due to funded vacant posts, R12 million was allocated, expanded Public Works Programme, R8 million was allocated, and Property and Construction Industry Policy and Research, an amount of R35 million was located.

The Department for Women, Youth, and Persons with Disabilities (DWYPD) received an R13 million increase in general administration, and R8 million was used to alleviate pressure on goods and services for the Commission for Gender Equality (CGE). An amount of R5 million was proposed to be allocated to the CGE to implement various projects such as research on thematic areas on Gender-Based Violence (GBV) and femicide and the commissioner's project on female traditional Leaders.

With the Department of Justice and Constitutional Development (DoJ and CD), it was proposed that R50 million be allocated to the Justice for Court Services and National Prosecuting Authority. Lastly, with the office of the Chief Justice, R45 million had been allocated to cover increases to the 2023/24 public service wage agreement.

(See attached for further details)

Briefing on the 2024 Gold and Foreign Contingency Reserve Account Defrayal Amendment Bill

Ms Mmakgoshi Lekhethe, Acting Deputy Director-General: Tax and Financial Sector Policy, National Treasury, gave an overview of what the GFECRA account was and how it was managed. She indicated that the account was held at the South African Reserve Bank (SARB), which captures losses and profits on certain foreign currency transactions. She elaborated that the SARB Act establishes GFECRA and empowers the Minister of Finance and the SARB Governor to settle balances by mutual agreement, and requires such balances to be paid into the National Revenue Fund (NRF). The current account only captures the losses, but with the new Bill, the profits will also be accounted for. Further, Ms Lekhethe also mentioned that the value of the account has grown to R500 billion due to significant rand depreciation. The purpose of the new framework is for the funds in the SARB to be transferred to the NRF to satisfy the requirements of the GFECRA. She stated that the framework will have buffers, the first being large enough to absorb the movement of funds in the account but without the negative balances on the account. The second buffer will be where the funds will flow into the SARB’s contingency reserve and whatever remains will be transferred to the National Treasury. Ms Lekhethe mentioned the guiding principles for the new framework such as no settlement of any balance on the GFECRA will undermine the policy solvency of the SARB.

Further, there shall be no sales of the foreign exchange reserves to release GFECRA gains as long as foreign exchange reserves are below the foreign exchange reserve estimated adequacy levels. There would be no settlement of an unreleased balance on the GFECRA that could plausibly be unwound by future currency reversals. The settlement of the credit balance on the GFECRA to National Treasury shall be used to reduce government’s borrowing. Finally, any future settlement of GFECRA funds shall be governed by an agreement and a relevant schedule. The amounts going into each buffer will be R250 billion for the GFECRA, R100 billion for the SARB contingency, and R150 billion for National Treasury. The proceeds from the GFECRA will be used to reduce government borrowing and R150 billion will be used to reduce government’s borrowing by R100 billion (2024/25), R25 billion (2025/26), and R25 billion (2026/27). As a result, debt service costs will be reduced by R30.2 billion over the MTEF which is accompanied by a reduction in the growth in the stock of debt.

(See attached for further details)

Discussion

The Chairperson thanked National Treasury for their presentations and stated that the Committee will do their best to fast-track the 2023/24 Second Adjustments Appropriation Bill so that the funds can be allocated to the respective departments by 31 March 2024.

Mr A Shaik Emam (NFP) welcomed the presentation by National Treasury, stated that he was concerned about the increase in funding for local government, and inquired about the measures in place to ensure that funds are put to good use given that the levels of corruption are very high at local government. He also added that municipalities are not doing enough to become self-sufficient.

He sought clarity on where the Smart Meters are being manufactured and whether the demand can be met.

He also expressed concern that National Treasury was taking R150 million from the only gold reserve. He indicated that this occurred when the debt GDP was increasing and there was borrowing for infrastructure development. In the same period, National Treasury also borrowed money instead of seeking ways to sustain the economy. He added that there was a lot of borrowing for benefits such as the social grants system. He then inquired about the direction being taken and what the greatest risk was in the actions of the National Treasury in this regard. He also asked whether there should be an expectation that further funds will be needed.

Mr O Mathafa (ANC) asked how the budget was responding to the lack of capacity, implementation in local municipalities, and revenue generation faced by municipalities. His concern was that funding was just given to a particular cause, which led to underspending. He asked if any measures have been put in place to ensure that municipalities use funds accordingly so they do not head back to National Treasury.

Regarding the Smart Meters Grant, he asked whether National Treasury envisioned a uniform, generic, similar approach by municipalities or whether the entity was open to flexibility.

He also wanted to know how municipalities would assist with revenue generation and stabilise the billing situation. In addition, he asked whether the response by municipalities was not in line with measures created by National Treasury and if any action was to be taken in this regard.

Mr Mathafa expressed concern about the procurement process that must respond to infrastructure requirements. He mentioned that there were areas in Kwa-Zulu Natal where residents had not had water for over a year. His question was whether there was a way for municipalities to follow normal procurement processes, except when disasters arise. However, under such circumstances, municipalities would still need to follow a procedure within the law.

Regarding the proposals for adjustments that Dr Modise referred to, he expressed his concern and disappointment in the underspending in the Department of Public Works and Infrastructure (DPWI) as relates to employment opportunities. He mentioned that government has set up the Expanded Public Works Programme (EPWP) to mitigate the effects of poverty and inequality due to unemployment by creating short-term employment opportunities. He then stated that if there was underspending in this category, the status quo was worrying and unacceptable.

Mr Mathafa noted that where there was underspending it was usually with compensation of employees. Concerning the Competition Commission, he mentioned that there were vacant positions. He asked if the positions would be filled, and if not, he stated that this meant that funds would be moved to another platform while there were people who were seeking employment opportunities.

Mr X Qayiso (ANC) expressed his concern about the same issues addressed in the presentations such as the lack of skills. He said the National Treasury needed to answer regarding the situation and state how the matter would be remedied.

He welcomed the adjustment proposals made by Dr Modise but questioned why there was no input on generation performance on the budget in the MTEF, as this was not considered. He asked how generation would be covered regarding Eskom.

Highlighting the issue of revenue, he said that it was good to see that priority had been put on the provision of funds to basic services to uplift poorer communities. He asked what the National treasury intended to do if investment companies wanted to disinvest in local municipalities due to a lack of proper infrastructure. He added that the matter poses a threat to local economies.

Mr Z Mlenzana (ANC) underlined that not all votes regarding the Adjustment Appropriation Bill had been picked up. He then asked for an explanation for this and inquired how the injunctions made by the President in SONA were catered for in the Adjustment Appropriation Bill.

He also expressed concern about the number of job vacancies that exist while there was still a high unemployment rate.

He asked if attention could be brought to the District Development Model (DDM) and whether there could be a financial management strategy as this would create revenue to assist municipalities. He added that this would ensure that processes are followed through without any delays involved. Mr Mlenzana indicated that the DDM would be monitoring the revenue-generating system.

Mr H Mmemezi (ANC) stated that upon visiting certain cities and towns, he noticed that people in certain communities had access to basic services; however, there were always shortfalls in the services received. He highlighted this as being a result of underspending and stated that there are also delays with paperwork to try and comply with processes. These compliance documentations also keep officers from surveying communities; therefore, the full picture of what is happening on the ground is not seen. He said that all government employees have to undergo training to ensure that performance indicators are adhered to as these employees do not visit sites and cannot meet targets. He said that the issue of vacancies is of great concern given that, again, many unemployed people are looking for work. He mentioned that all spheres of government need to respond to the matter urgently as it did not make sense for there to be vacancies and underspending in departments.

Mr X Qayiso (ANC) raised the issue of the budget remodelling; he wanted to know how far National Treasury was regarding the matter.

Referring to the R13 million allocation proposal to the Commission on Gender Equality (CGE), he asked for a breakdown, especially at the sub-national level.

Concerning the Division of Revenue Bill, the Chairperson pointed out the changes to the provincial equitable share allocations and asked whether the changes were additions or subtractions to the budget.

With the reprioritisation of the ECDs, he asked National Treasury to explain what the entity is trying to achieve and what impact was created with the reprioritisation of these funds to the national government. He inquired about the amount prioritised for the Western Cape Rapid School Build Programme and what urban trading services are. He mentioned that the local government's equitable share under expenditure was still a concern as it implied that communities did not receive the required services. He asked how this matter could be fixed.  

The Chairperson emphasised that the reasons behind underspending are not monetary based, and asked whether there are penalties in place that can be imposed on officials who are not performing to the required level.

He also raised the issue of the lack of project management skills. He asked if there was any initiative from National Treasury or the Department of Cooperative Governance and Traditional Affairs (COGTA) to try and deal with the problem because the skill is useful in many departments. Given that departments deal with large sums of money, he stated that the lack of project management skills can lead to underspending.

He highlighted that there was a time when the GFECRA account was in a deficit. He then asked if this was correct, and with the R8 billion liquidity management cost, he inquired where such costs arose from.

Responses

Addressing the question of equitable share of local government posed by Mr Emam and Mr Mathafa, Ms Ngqaleni stated that the main problem has to do with the capacity to deliver the services, spend the money, and collect the revenue. She elaborated that National Treasury tries, by all means, to ensure that the budget responds to the need. She indicated that there was healthy growth in the budget, especially with equitable share and conditional grants, compared to other spheres of government and other areas experiencing slower growth.

She specified that the problem was with how the money was used and the way it had been allocated and the issue was also with municipalities optimising their revenue. She said National Treasury relies on sister departments regarding performance management and institutional issues, such as capacity. These are regulated in terms of the Municipal Systems Act which puts COGTA in the driving seat to see if they are fit for purpose.

With wasteful and irregular spending, she said that National Treasury was trying to put in place an audit action plan that would address how irregular spending can be dealt with. Municipalities need to ensure sustainability when it comes to their spending and this was a challenge that Ms Ngqaleni highlighted. The issue was also that problems arose when there was new leadership. She mentioned that the issue of local government service delivery always comes up within committees and advised that this was problematic and brings into question whether a real and sustainable impact can be made. This then brings into question what legislative measures need to be put in place, given what has been learnt over the last 30 years since the country has had these functional configurations. She said that how the functions have been allocated did not lead to the professionalisation of the services.

She said that trading services such as water and electricity cannot function because of the choices made by those in leadership roles. She questioned whether the focus should be more on service delivery and the experience of people and less on trying to get these institutions to implement changes. She stated that measures need to be put in place to ensure municipalities can take more active roles and have more oversight over service providers.

To answer the Chairperson’s question on the urban trading service which includes water, electricity, and solid waste reforms, Ms Ngqaleni explained that these were the core services the local government needed to deliver. These services have begun to operate at a deficit level and are in a state of collapse. The materials needed to affect these services are in a state of disrepair and this is due to management and governance. Especially with governance, these are the individuals responsible for assigning certain people with certain tasks and how services are delivered. However, given that there was a reduction in the quality of maintenance, disinvestment, and the poor functioning of these networks, the impact on the economy was quite large given that this counts as 60% of the budget in revenue.

Ms Ngqaleni continued explaining that conditional grants were given, but the performance was declining. She said that conditional grants create an incentive for the quality of the work that needs to be done by municipalities, and this means that there needs to be professionalisation in these areas so that spending is well accounted for and there is an increase in revenue. She stated that these are the systems put in place to improve service delivery and for the system to deliver at the required level. Ms Ngqaleni indicated that there also needs to be more reform on configuring the powers and functions within municipalities for these services.

Moving to emergency procurement, she explained that it was a difficult process as it is sometimes difficult to determine who gets what in the process. She added that it was a common occurrence that problems arose internally instead of externally.

She indicated that National Treasury writes letters to municipalities every December to inform them that they have not spent parts of their budgets. This is so that the municipalities can explain why they should receive further transfers and also so that municipalities do not use the funds for anything other than what they have been designated for. She said that the letter serves as a wake-up call for municipalities to do the work they are supposed to do with implementing projects.

Moving to the DDM, Ms Ngqaleni said it was impossible to determine whether this operation could be effective as it could not take the powers away from municipalities. She mentioned that the implementation framework has not worked because it still functions within the powers of municipalities and does not have power over the budget. This means that the implementation framework has limited power and cannot work outside of the bounds of the law. She added that the DDM brings alignment and coordination, which is currently needed in government but it has not been implemented. She said that she was unsure if this could be used to interrupt the powers and functions of municipalities.

Mr Sadesh Ramjathan, Director: Local Government Budget Analysis, National Treasury, spoke about the rollout mechanism of the Smart Meters and indicated that the mechanism to be used was the RT29 Transversal Tender. This was for the STS TID rollout for the replacement of Smart electrical meters and water meters. He informed the Committee that the RT29 Transversal Tender was in the final stages of procurement and that by 1 April 2024, a panel of service providers would be available for municipalities to utilise for their intended purposes. He elaborated that National Treasury would like to use RT29 to ensure that the Smart Meters are locally manufactured and not imported and have six/seven service providers. He added that the manufacturing plants were evaluated to ensure local production. Mr Ramjathan highlighted that there will be a three-year component of support from National Treasury, including training staff to manage intelligence where a smart meter is required. There will also be meter readers to interpret the information on the meter and the last component requires that municipalities have a communication strategy to roll out the smart meter project.

Ms Ngqaleni explained that the Smart Meter funding targeted municipalities that were in default and would not stop them from rolling out their resources.

In addressing the question on free basic services, Ms Fanoe said that huge funds go into equitable shares used for staff salaries rather than benefiting the poor. She said such funds should be garnered so that the poor can access free basic services.

Regarding disinvestment by companies, she said that this occurs due to internal issues with municipalities, as some investors might be discouraged by the lack of reliable roads and water. She added that it is the responsibility of municipalities to make certain changes to ensure that investments are not lost.

Concerning the question of the cost of compliance, Mr Pakkies stated small grants needed to be done away with. He indicated that a review of the fiscal framework was under review and a lot of work had been done such as scoping and exploring revenue measures. He said that work was being done in terms of scoping and evaluation of expenditure. Equally important was that from the Department of Human Settlements (DHS), projects were undertaken within informal settlements and two grants currently provide services to informal settlements. Measures have also been taken to ensure people are relocated to other areas so that bulk services can be provided. He added that municipalities also have the grant to ensure that informal settlements are assisted with such projects.

Ms Ogalaletseng Gaarekwe, Chief Director, National Treasury, spoke to the allocations related to GBV and stated that the Department of Social Development has set aside funding to support victims, and has also set up shelters for victims for safety purposes. She indicated that there are also a number of initiatives put in place for victims to ask for assistance when needed.

Mr Daka responded to the Chairperson’s question about the effect of the additions made to the provincial equitable share. He stated that an allocation of R102 billion was added, a reduction of R62 billion was implemented and the net effect was R40 billion. The total addition made amounted to R105 billion and R4 billion was made to the conditional grants.

Addressing the question of the effect of the reprioritisation of the funds for the ECD, he stated that there was no impact. This was because the funding was not allocated to any province, but was left unallocated. He added that funding was shifted to the Department of Basic Education. He said that the private sector would be able to pay for the reserves across the country and that the nutrition programme was being moved to the national government as the National Treasury still needs to find a way to implement it.

Mr Daka then answered the questions related to the Western Cape Rapid School Build Programme, which has been provisionally allocated funding, subject to meeting certain conditions. He explained that if the Western Cape meets the conditions, then the province will receive funding of R250 million and in the following financial year would receive R1 billion, and in the year after that, the province would receive R1.25 billion.

Ms Ngqaleni then addressed the question about municipalities being kept busy with reporting. She responded by saying that this was just an excuse and this was because a measure systems reform had been put in place for planning, budgeting, and reporting. She stated that the system is simple, as it presses a button to generate reports. She added that National Treasury also worked with COGTA and other sectors to streamline non-performance. She indicated that the system would also generate reports on non-performance per sector and ensure no duplication of information. The only problem is with municipalities and how they would be able to use the programme effectively.

Mr Sello Mashaba, Director: Conditional Grants and Monitoring, National Treasury, spoke to the conditional grants with a specific focus on local government and said that when a conditional grant reverts to the National Revenue Fund, this was done as a last resort and was done in consultation with the relevant municipalities and sector departments that are responsible for such grants. When funding is received, funds are then transferred to ready projects. After this, a payment schedule is put in place to state that a particular payment has been made available for implementation. He highlighted that councillors need to implement budgets with ready programmes. They also need to ensure that the cash flow from National Treasury is aligned with the project set in place.

Regarding monitoring capacity, he mentioned that there needs to be a councillor supported with the administration of such projects. For example, the JB Marks Local Municipality in the North West had been struggling with appointing CFOs, and government sent an official from National Treasury to work with the municipality and support it. This official helped support the municipality, and it is doing better. Another municipality, the Mopani District Municipality in Limpopo, had been struggling to spend funds that it had been allocated on conditional grants. National Treasury then decided that the municipality could outsource support and, over time, absorb the support. The resultant effect was that the municipality began to perform well. In Mpumalanga, a service-level agreement was entered into within Thaba Chweu Local Municipality, and it was working well. However, it had been difficult to receive support in places such as the Free State province.

Dr Modise addressed the question of underspending and said that National Treasury would try to shift the funds so they are used effectively. She highlighted that planning was very critical when there were projects that needed to be implemented, and this assisted with a clear understanding of what needed to be done with a project. She further stated that Public Finance was also looking at getting a mechanism of shifting funds so that when a department was ready to make use of a budget, it could receive funding from a sector that might not be ready to proceed yet.

She spoke about why certain issues addressed in the Second Adjustments Appropriation Bill had not been seen earlier and explained that this was the first time budgets were to be reduced within the year. She added that, at times, it was difficult to see how much departments would be able to absorb from the budget and as such, National Treasury worked with estimates to see how much of the funding could be used without overspending.

Regarding the SONA announcement, she said that the Second Adjustments Appropriation Bill would be presented to Parliament.

Concerning funding for the CGE, she mentioned that there was an allocation of R30 million, which was divided into two parts. The first R8 million was proposed to be allocated to the DWYPD, R5 million would go to the Commission itself and an amount of R4 million would be directed toward employee compensation.

Ms Lekhethe appealed for the adoption of the GFECRA Bill to be fast-tracked. She commented that, in Chapter 7, National Treasury apportioned funds from the account towards reducing government borrowing in order to provide certainty. She also stated that this was not the first time that the account found itself in a deficit. In 2002, the GFECRA had a deficit with an amount of R28 billion and at the time, there was an agreement between the minster and National Treasury that government would deposit funds into the GFECRA and this was done in instalments of R7 billion per annum.

This time, it was advised that a settlement agreement be reached between the minister and the governor. Once the balance on the account has been determined, a decision can be reached on whether there is a settlement in favour of National Treasury.

Regarding the risks involved, Mr Wessel Moolman, Director: Accounting and Information, National Treasury, stated that the Reserve Bank would fund the GFECRA through the use of excess bank reserves, and that translates as costs on the GFECRA. These costs would not be paid directly as part of government, but rather the contingency reserve buffer as per the current arrangement put in place between SARB and National Treasury.

Ms Lekhethe also addressed Mr Emam’s question on the implications of withdrawing reserves and whether there are any risks. She stated that the way the framework was designed was that the policy solvency was kept pure so that funds could be reserved. The two main principles ensured that National Treasury honours its obligations and that sufficient funds remain in the buffer to warrant that, should there be any negative impact, the SARB has protection against any currency volatility.

The Chairperson thanked National Treasury team for all their presentations and acknowledged that work was being done behind the scenes and that those in positions of power must be held accountable for the work that they do.

Mr Emam raised a concern about the emphasis that has been placed on revenue collection from taxes. He said that other monies are not accounted for, especially from foreign nationals, small businesses, and organisations. He added that a lot more revenue can be collected, particularly from non-compliant people. He indicated that the Department needs to identify the problems within municipalities and share them with the communities. This especially concerns corruption, as this is prevalent at the municipal level; however, nothing has been done about it. He stated that perhaps other structures can be used to monitor municipalities.

He also asked whether there was any chance that the local government was not investing in businesses and did not receive any returns on this, but they still managed to make revenue on their own and could become more self-sufficient.

The last point he communicated was whether there should be a reduction in spheres of government such as making the district governments part of municipalities.

Mr Qayiso appreciated the work done by the Department which showed commitment and said that what was important was the assessment of the work done by National Treasury. He commented that it seemed as though the entity was much more reserved when it came to the Reserve Bank and therefore, it was difficult to assess the work that had been done if no figures were being shown.

The Chairperson extended his appreciation to National Treasury for all the work done. He indicated that with many of the issues raised in the discussion by the Committee Members such as underspending, the value for money, the allocation of funds, and the raising of revenue, it was important that the entity defended the budget, and it was also important to see how money was used.

He emphasised that the issue was not strictly with money, but it mainly had to do with how the money was spent. He also underlined that skills and knowledge will also be passed on to the next administration to ensure continuity. He added that it was also significant that the challenges at the local government were addressed and solved as these affected the marginalised members of society.

[The meeting was adjourned.]