Division of Revenue Amendment Bill, Adjustments Appropriation Bill & Special Appropriation Bill: National Treasury briefing

Meeting report

The Chairperson welcomed all Members to the meeting. She mentioned that the National Treasury (NT) would arrive late. Thereafter, she asked if any apologies were tabled.

Mr Lubabalo Nodada (Committee Secretary) said the Committee received an apology from Ms Siwisa and the Deputy Minister of Finance, Mr Ashor Sarupen.

The Chairperson mentioned that Mr Hadebe was currently presiding over the National Council of Provinces sitting and could not attend the meeting. She asked if the members had accepted the apologies.

Mr D Ryder (DA, Gauteng) said the apologies were accepted.

The Chairperson indicated that, due to time constraints, the Committee would only consider and adopt one of its outstanding minutes.

Minutes for 11 September 2024 Committee meeting

Mr Nodada took the Committee through the minutes.

The Chairperson requested a mover for their adoption.

Ms S Nxumalo (ANC, Mpumalanga) moved for their adoption.

Mr P Swart (DA, Western Cape) seconded the mover.

The minutes were duly adopted.

Chairperson’s Remarks

The Chairperson noted the arrival of the NT’s delegation and officially welcomed them to the meeting. She said the meeting's purpose was for the Committee to discuss the three critical pieces of legislation envisaged in Section 12 (11) of the Money Bills and Related Matters Act: the Division of Revenue Amendment Bill, the Adjustments Appropriation Bill, and the Special Appropriation Bill.

The appropriation process is essential in ensuring that the government’s programmes are adequately funded to meet citizens' needs. The bills are pivotal in re-aligning fiscal policies and ensuring that resources are prioritised effectively to address the country's ongoing commitments and new challenges. Today, the Committee will have the opportunity to directly engage with the NT regarding the implications of these bills, the rationale behind the processed amendments, and how they align with the country’s broader economic and social objectives.

Members' insights and deliberations will be invaluable as they work towards fulfilling their responsibilities in reviewing and providing recommendations on the legislative programmes.

After making those brief opening remarks, she invited the NT to take Members through the two presentations.

Ms Ogalaletseng Gaarekwe (Acting Deputy Director-General: Intergovernmental Relations at the National Treasury) tendered apologies on behalf of the Ministry and the Director-General (DG).

Briefing on the Division of the Revenue Amendment Bill

Ms Gareekwe, Mr Letsepa Pakkies (Director: Local Government Fiscal Framework at the National Treasury), and Ms Wendy Fanoe (Chief Director: Intergovernmental Policy and Planning at the National Treasury) took the Committee through the presentation.

The Bill proposes adjustments to the 2024/2025 provincial allocations, with R948 million added to provincial conditional grants to fund the reconstruction and rehabilitation of provincial infrastructure damaged by the flood and storm surges that occurred in the Western Cape between December 2023 and July 2024: R300 million to the Comprehensive Agricultural Support Programme Grant, R70 million to the  Education Infrastructure Grant (EIG), R571 million to provincial Roads Maintenance Grant, and R251 million to the EIG for the Western Cape Rapid School Build Programme, funded through the Budget Facility for Infrastructure (BFI). R37 million is to be rolled over in the School Infrastructure Backlogs Grant (SIBG) for projects under the Sanitation Appropriate for Education Initiative for schools in the Eastern Cape.

The Bill proposes adjustments to the 2024/2025 local government allocations, with R684 million added to the Municipal Disaster Recovery Grant (MDRG) to fund the reconstruction and rehabilitation of municipal infrastructure damaged by the floods that occurred in various parts of the country between December 2023 and July 2024. R300 million is to be shifted from the Public Transport Network Grant to the Taxi Relief Fund (TRF) to fund the programme’s extension (now part of the formalisation of the taxi industry). R29 million is rolled over in the Municipal Systems Improvement Grant (MSIG).

Some of the reforms over the Medium-Term Expenditure Framework (MTEF) will include merging certain grants, such as the Comprehensive Agricultural Support Programme (CASP) grant with the Ilima/Letsema grant, the EIG with the SIBG, and the two provincial Expanded Public Works Programme (EPWP) grants (Integrated and Social Sector). The community library services grant will be incorporated into the provincial equitable share.

Briefing on the 2024 Adjustments Appropriation Bill and the Special Appropriation Bill

Mr Mark Blecher (Chief Director: Public Finance at the National Treasury), Ms Pabetse Maleka (Public Policy Specialist at the National Treasury), and Mr Lucas Bidzha (Policy Analyst at the National Treasury) took Members through the presentation.

The Adjustments Appropriation Bill provides for increases or decreases to allocations set out in the main Appropriation Act, including shifts in the anticipated economic classification of this spending.

Some of the key appropriation highlights are that R2.1 billion has been allocated to the Southern African Development Community (SADC) Mission in the Democratic Republic of Congo (DRC) through Operation Thiba, R1.6 billion to the Department of Social Development (DSD) for the payment of outstanding and accrued COVID-19 Social Relief of Distress (SRD) R350 grants, R750 million to the SADC Mission in Mozambique through Operation Vikela, and R251 million to the EIG for the Western Cape Rapid Schools Build Programme.

R51 million has been shifted from the Department of Military Veterans (DMV) to the Office of the Chief Justice to cover a budget shortfall on compensation of employees, and R10.3 million from the Department of Agriculture, Land Reform and Rural Development to the Department of Forestry, Fisheries and the Environment for compensation of employees. The Department of Home Affairs (DHA) self-generated R1.6 billion from issuing documents. In total, R2 billion worth of rollovers have been approved by the department.

The Special Appropriation Bill allocates R5 billion to pay off the Gauteng Freeway Improvement Project (GFIP) debt.

At the end of the presentations, the Chairperson posed a few questions about why the NT did not express a view on the challenge of disbursing benefits to the country’s military veterans and if the Government Printing Workings (GPW) was the main contributor to the DHA’s self-financing expenditure; and whether the NT had a mechanism to monitor the self-financed expenditure and government grants, or if it relied on the Auditor-General of South Africa (AGSA) for this work.

After asking those questions, she opened the floor for discussion.

Discussion

Ms S Ndhlovu (ANC, Limpopo) asked the NT to provide reasons for the delays in spending the SRD grant, as there should be a seamless spending trend by now, as it has been in place for four years, and the reasons why the DSD faced spending pressures.

Mr Ryder believed that the public wage settlement – which has created a deficit for all provinces – will have a long-lasting impact going into the future because it was agreed above what it was initially budgeted for. In his view, the presentations did not indicate any adjustments to provincial allocations that will assist provinces to make up for the shortfall. Reports show that most provinces will need to reduce the number of staff members due to limited funds, which will inevitably impact service delivery. He asked for the NT’s opinion on this.

One of his concerns was the number of children who have been killed due to falling in a pit latrine, which he believed could be tackled by having a separate fund to address the school infrastructure backlogs instead of the department’s decision to merge the EIG and SIBG for infrastructure in the Department of Basic Education (DBE).

After that, he asked for more details on the reported R2 billion underspending by local government, detailed in the Medium-Term Budget Policy Statement (MTBPS); for more details on the R5 billion referred to in the Special Appropriation Bill, and for more details on the shifting of funds from the DMV to the Department of Justice and Constitutional Development (DoJ & CD).

Mr Swart asked the NT if the rollovers and underspending recorded by government departments and local governments were due to a lack of capacity or will and what steps were in place to ensure efficient fund utilisation in the government. He felt these twin issues required serious attention from the Seventh Administration.

After that, he asked how the R2.1 billion emergency funds allocated to the SADC mission in the DRC aligned with the country’s policy of fiscal consolidation, if there was a clear strategy to evaluate the cost-effectiveness of such missions, and for clarity on the R408 million that has been reprioritised for the public transport network grant to fund other priorities in the sector.

In his view, the government must set aside enough funds for entrepreneurs and owners of small, medium, and micro enterprises (SMME), as they will play a significant role in driving economic growth in the country.

He expressed concern about the rollover of R37 million for the SIBG.

Mr J Britz (DA, Eastern Cape) asked the NT several questions around what progress has been made to merge the EIG and SIBG together; whether the R37 million rollover related to the merged EIG/SIBG, or only the SIBG; why the TRF which was initiated in 2020 to assist industries suffering financial distress during the height of the Covid-19 pandemic, was still ongoing; what criteria was used to determine the R684 million additional adjustment to the MDRG bearing in mind the different gradings of municipalities; similarly, what criteria was used to determine the R20 billion rollover in the Municipal Systems Improvement Grant (MSIG) bearing in mind the different gradings of municipalities; what the projected effect the failure to secure the budget facility for infrastructure bid window eight would have on the deficit; whether the grant mergers over the medium term, if they are concluded, would correspond with the National Development Plan (NDP) goals; and whether the R2 billion that has been adjusted for disasters was indicative of the seriousness of disasters on communities.

Mr K Ceza (EFF, Mpumalanga) asked the department to explain if the 2024/2025 division of revenue had broke new ground in allocations compared to previous years, whether the government maximally collected its revenue, considering the money lost to illicit financial flows, base erosions, and through tax avoidance – if not, what would be done differently to improve on revenue collection; for specific details on why the community library services grant (CLSG) will be incorporated into the provincial equitable share; what impact the incorporation will have on the deliverables of the CLSG; and whether community libraries have been built in the country’s various municipalities, particularly those in the Mpumalanga province.

Mr J Majola (MK, KwaZulu-Natal) indicated that Parliament has been reminded that the MTBPS is not a budget but a reflection with the intention of correction. Despite that, he wondered whether the financial instruments outlined in the MTBPS would fulfil their intended purposes.

In his view, municipalities have consistently struggled to spend their grant allocations within each financial year. He asked when the department would reprioritise money not spent by government departments and municipalities which urgently need the funds if the NT believed that all three spheres of government would spend the budget allocations, what the R300 million reprioritised to formalise the taxi industry would do; why the tackling of extortion and other criminal activities were not included in the budget allocation for unforeseen and unavoidable expenditure; why a budget allocation was made for the SANDF mission in the DRC when the country cannot secure its own borders; and for a detailed breakdown on the virements.

Ms Nxumalo believed merging grants like CASP and Ilima/Letsema reduced the scope for corruption.

Thereafter, she asked the department how accessible the TRF was taxi owners and how it would be processed; how the R29 million rolled over to the MSIG to complete projects related to data management would be equitably shared amongst municipalities; and whether the ruling by the Supreme Court of Appeal (SCA) that multimillion Rand claims can be recovered from municipal officials found to be responsible for unauthorised, irregular, fruitless, and wasteful expenditure (UIFW) would also apply to officials in provincial and national departments.

Ms Gaarekwe indicated that the department recently visited a community library in Dr J S Moroka Municipality, and the details of the library and others built through the CLSG will be provided to the Committee. Two-thirds of the grant is spent on operationalising the libraries, and one-third is spent on construction and maintenance. Part of why the CLSG was incorporated into the provincial equitable share was to assist with the compensation of library employees.

Regarding the budgetary pressures caused by the public wage settlement, she reminded the Committee that last year’s MTBPS indicated that there would be a reduction of the budgets in the MTEF period, which impacted provinces substantially, amounting to almost R20 billion a year. Usually, when the provincial governments receive an allocation letter on the day of the MTBPS, the department requests that they submit a second draft of their budget. At a certain point, the department noted that the provinces’ recommendations were not in line with their own, especially regarding employee compensation. The NT reversed the cuts made by the provincial governments on education and health. Based on the current post-basket, the department did not believe provinces would need to reduce their staff complement.

The department recently published provincial spending figures for the second quarter in the government gazette. While the public wage agreement has placed pressure on the budget, it is not as bad as reported in the media. Most of the pressure is in provinces like the Free State and KwaZulu-Natal. 

On the merger of the EIG and SIBG grants, she indicated that when the SIBG was first initiated in 2010/2011, it was supposed to be a three-year grant, with most of the allocations going to rural provinces like the Eastern Cape, Free State, Limpopo, and KwaZulu-Natal. One of the issues the department picked up is that the provinces have been using their EIG to eradicate pit latrines instead of the SIBG. The NT believed that only one government department should be responsible for delivering infrastructure in provinces.

Overall, the NT merged some grants to reduce function duplication and improve efficiencies.

Through its mechanisms to monitor expenditure, the National Treasury has noted that departments and municipalities spend 95% of the provincial grants at the end of the financial year.

Regarding municipalities' underspending, she explained that the department will decide whether to roll over funds after a financial year has ended. If no plans exist to use the unspent funds, they will be taken to the National Revenue Fund (NRF).

On the BFI, she confirmed that the money still has to be secured and that doing so will likely increase the government’s borrowings.

Regarding SMMEs, she stated that SMMEs generally benefit financially from all three spheres of government.

She said the SCA ruling would create a legal precedent for the government to follow.

Ms Fanoe explained what criteria are used to determine the allocation of disaster funds. Usually, when a disaster is declared, the municipality must apply to the provincial disaster management centre, which then does a verification and sends it to the National Disaster Management Centre for the final verification with an amount requested to the NT. Often, what a municipality requests to be funded is not fully granted as the costs submitted are usually bloated.

Regarding the EPWP grant, she mentioned that the department decided to merge the two EPWP provincial grants and keep them as conditional grants.

On what new ground the MTBPS broke, she indicated that several things have changed. For instance, the department has put in place interventions, jointly with the Department of Cooperative Governance and Traditional Affairs (DCoGTA), to provide municipalities with support. Some other initiatives are the Eskom debt relief plan, the merging of grants, and the improvement of the regulations of development charges so that municipalities can use that as a revenue source to put in place bulk infrastructure.

Regarding the appropriation of R5 billion, she clarified that money was being allocated away from provincial and municipal conditional grants to fund national government priorities.

Adding onto the response on the rollovers, she stated that rollovers are characterised in two ways, either as part of the business or due to incompetence. It is inevitable that when running an infrastructure programme, a department will make financial commitments in March that will need to be paid in April before the end of the financial year. Rollovers from one financial year to another are part of the business. Rollovers become a problem only when the amounts are too large.

Mr Pakkies highlighted the criteria used for the rollover in the MSIG. This indirect grant - managed by the DCoGTA - identifies municipalities requiring operations assistance. For a municipality to qualify for the assistance, it has to agree to an improvement plan. Part of the agreement includes that municipalities must show how they plan to maintain those systems through their allocations.

The MSIG is intended to advance the District Development Plan and target the 52 priority districts to ensure that the various municipalities implement their One Plans. Within the same grant are 39 Intermediate Cities, which are urbanising municipalities. Those cities qualify for the Urban Integrated Development Grant, which is used to develop capital infrastructure frameworks.

Ms Fanoe confirmed that the previous MTBPS announced the merger of the EIG and SBIG. Part of why the NT has decided to merge grants is to ensure that there are as few indirect grants in the system as possible. They are only implemented as a temporary support mechanism for the national government to capacitate provinces and municipalities to fulfil their mandate. The merger of the EIG and SBIG is to streamline the grants into a longer-term support mechanism, but at the moment, there is no clarity yet on when the merger of the two will occur.

Ms Gillian Wilson (Chief Director at the National Treasury) explained that the DHA's self-financing is intended to defray the cost charged by the GPW for the printing and production of civic documents. What is appropriated for civil documents aligns with the deposits made into the NRF.

An official from the National Treasury outlined that the DMV's challenges were related to the lack of stability in its leadership structure, which has had five different DGs since 2016/17. Since its establishment, the DMV has consistently underspent its budget despite having several destitute military veterans.

Regarding the shifting of funds between the DMV and the DoJ & CD, he clarified that funds were being transferred from the DMV to the Office of the Chief Justice.

In response to the questions related to the deployment of SANDF members to the DRC, he told the Committee that the country is spending about R3.6 billion in total on the three missions: the United Nations Organisation Stabilisation Mission in the Democratic Congo and the SADC-led missions in the DRC and Mozambique. All three are policy decisions made by the national government, which the NT has to fund.

Adding to the responses on rollovers, he explained that rollovers are amounts that have been underspent but were committed in the previous financial year. For instance, while the R37 million SBIG was underspent, the amount was committed as invoices were received in the financial year but were not processed within that time.

The NT has an early warning system that monitors the monthly expenditure of national departments, with report backs given. Quarterly meetings are also held with the various departments, and the basic accounting system is used to extract expenditure from any national or provincial department when required.

Ms Maleka said the department hoped that Parliament would approve the rollovers given that the various departments have taken these expenses to implement specific projects.

Regarding the question on unavoidable and unforeseeable expenditures, she mentioned that this category relates to departments requesting to spend on items they had not anticipated before the budget allocation.

On the R5 billion allocation, she informed the Committee that the national government and Gauteng provincial government entered into an agreement requiring the former to pay the NRF as part of its contribution to paying off the debt for e-tolls.

Regarding the appropriations to the Transport Grant, she explained that this money will assist the Department of Transport (DoT) in implementing projects like Sihamba Sonke and the Taxi Empowerment Programme and establishing a singular transport regulator.

The TRF was implemented during COVID-19 to provide taxi owners with short-term relief, but due to capacity weaknesses, the DoT has been unable to pay all the taxi owners what they were due. This is a long-standing commitment the DoT should have honoured. Previously, the project was implemented through the National Empowerment Fund, which struggled to pay out the monies from the Fund to taxi owners, resulting in R708 million being returned to the NRF.

Mr Blecher stated that the biggest reason for underspending on the SRD was individuals failing to submit their bank accounts or submitting accounts that did not belong to them.

In addition to the responses on rollovers, he stressed that the NT tends to cut the budgets of departments that underspend.

On bid window eight, he said the BFI is being scaled up and will soon be sitting at least four times a year and possibly permanently. As such, the deficit may increase because some of the projects listed in Chapter 5 are not yet budgeted for.

Regarding how the government will improve its revenue collection, he proposed that the Committee invite SARS to provide a detailed presentation on what is being done. The MTBPS proposes additional funding to SARS to improve revenue collection.

The Chairperson thanked the NT for the engagement and then adjourned the meeting.

The meeting was adjourned.