Medium Term Budget Policy Statement: input from Departments, Development Bank, AgriSA, SALGA

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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report


2 November 2004

Mr N Nene (ANC), Mr B Mkhaliphi (ANC, Mpumalanga)

Documents handed out:
Medium Term Budget Policy Statement 2004 (offsite link)
Department of Land Affairs submission []
Department of Agriculture submission []
Department of Water Affairs and Forestry submission []
Agriculture South Africa submission
Contralesa submission
Development Bank of Southern Africa submission []
Department of Provincial and Local Government submission []
South Africa Local Government Association submission [

The Committee heard submissions from the Departments of Land Affairs, Agriculture, Local and Provincial Government, Water Affairs and Forestry, as well as from the Development Bank of Southern Africa and Agri-South Africa. The theme that ran through all the submissions was the urgent need for rural development and the manner in which these departments and institutions had co-operated. Amongst the concerns raised by Members were concerns about under-spending and the shortage of funds for the land reform programme.

In the afternoon session, the South Africa Local Government Association (SALGA) briefed the Committee on the impact of the Medium-Term Budget Policy Statement (MTBPS) on local government, particularly in the financing of municipal budgets. Problems highlighted included the difficulty that many municipalities experienced in raising sufficient own revenue. To this end, SALGA welcomed the review of the local government equitable share allocation formula, and pointed out that capital expenditure placed huge pressure on existing infrastructure, particularly in terms of maintenance and human resources. The Committee questioned the outstanding debts owing to local government, and suggested that the billing system be reviewed.


Department of Land Affairs submission
Ms S Tshwane, Deputy Director General Land Affairs, reported that land was the cornerstone of the economy. The policy context had taken into consideration the fact that the majority of South Africans were residing in areas of minimal economic activity while the minority was settled in the most productive areas of the land. The Department had provided support for Land Reform Programmes in co-operation with the Departments of Housing, Local Government, and Agriculture. The co-operation with these departments was important when dealing with state land and the labour tenant programme. The Department had formed partnerships with Agri SA in the restitution process.

The Departmental programmes were Land Reform, which was comprised of Restitution, Redistribution and Tenure. Land planning administration consisted of Surveys and Mapping, Cadastral Surveys and Deeds Registration and Spatial Planning. Achievements had been policy and legislative framework, capacity building, settlement of restitution claims and participation in the Land Redistribution for Agricultural Development (LRAD) programme. Spending of the allocated budget indicated that 99.91% of the money allocated for restitution had been spent accordingly in 2003/4. In 2004/5, 75% had been spent on restitution. Priorities for the Department had been to complete the restitution and make interventions in failed projects. Furthermore, the restitution of 30% of agricultural land had to be made by 2015. Another important area of activity had been the implementation of the Communal Land Rights Act, and the finalisation of the of the Black Economic Empowerment Charter. The Department is cooperating with the communal land projects in the Agricultural Credit Scheme. Challenges facing the Department had been the public pressure to deliver, inadequate resources, post-settlement support and unsustainable land prices/settlement packages.

Ms R Taljaard (DA) asked what the Department intended to do about funding in order to meet targets. What were the views of the Department on imposing taxation in order to finance restitution?

Ms S Tshwane replied that the Department would not rely only on state funding because it would never be enough. They would engage Treasury so as to devise means of accessing alternative funding for restitution. She said that the Department had never discussed taxation as a means of raising more funds.

Mr Galane (ANC) asked what had been the role of the Department in the Rural Development and Urban Renewal Programme. What were the chances of under spending, what was the reason for the low uptake of the provincial and local government transfers and subsidies.

Ms Tshwane replied that the Department had been facilitating the acquisition of land for Urban Renewal Project. An example was Alexandra that had an acute land shortage problem. Funding had been provided by the provincial government. Funds had been transferred to provinces and municipalities but those funds would be only show once the benefits had been accrued.

Dr S Cwele (ANC) asked how much money had been allocated to issue title deeds on state owned enterprise land. What method had been used for land evaluation.

Ms Tshwane answered that in terms of deeds registration, the Department had been operating a separate account and it had been profitable. The title deeds had been converted from the Department of Public Works

She noted that the process of land was bound by the Constitution but the process took five steps. These were:
- the historical acquisition had to be taken into account,
- current use of the land (for example, infrastructure and irrigation facilities),
- independent valuers had to determine the present value,
- state subsidies would be discarded,
- productive value would be considered taking into consideration what the land could produce.

Dr Rabie (DA) asked what had the Department done to equip land beneficiaries to help them start farming.

Ms Tshwane replied that R200 million had been set aside to help land beneficiaries. The Department of Agriculture had rolled out the credit scheme.

Mr G Schneemann (ANC) enquired what would be the role of the Department in providing land for housing needs of the population.

Ms Tshwane replied that the Department had been interacting with the Department of Housing in providing and facilitating provision of land for housing development. A Memorandum of Understanding between the two ministers had been signed.

Department of Agriculture submission
Mr G Mbongwa, Deputy Director General, reported that Department was in the process of establishing an Agricultural Credit scheme known as the Micro-Agricultural Financial Scheme for South Africa (Mafisa). The role of the entity had been to provide Micro-Agricultural financial services on a widest cost effective manner. The scheme would target farm workers, the landless, small farmers, and land reform beneficiaries. The scheme would be phased in over ten years.

Ms R Taljaard (DA) asked what had been the Departments game plan in terms of co-operation between the third and the second tier of banks. What had been the reason for scraping the previous agricultural credit scheme.

Mr Mbongwa replied that the previous credit scheme had been externally funded and it was fragmented. The previous government had scrapped the credit system and changed co-operatives into companies which were supposed to help emerging farmers to access credit.

Mr Schneemann (ANC) what had been the impact of under-spending on the Department's functioning.

Mr Mbongwa replied that there reason for this was there had been several vacant posts that had not been filled.

Mr Botha (ANC) enquired what was the problem with the Land Bank, because very few people had accessed loans through it.

Mr Mbongwa replied that the Land Bank could not cope with the influx of people who required loans in the absence of the micro credit scheme. External funders had not been successful in providing financial services to emerging farmers and the scheme collapsed eventually.

Mr Ralane (ANC) asked what had been the reason for the low uptake of subsidiesby the municipalities, was it because of capacity or because they had not submitted a business plan.

Mr Mbongwa replied that the Department had sent high ranking officials to find out what had been the problem on the ground.

Agri SA submission
Ms A Crosby, Parliamentary Officer of AgriSA, noted that AgriSA was a voluntary organisation of farmers and agri-business which had been striving for global competitiveness. The organisation had been supportive of the strategic government framework for the period ahead. Most farmers were small and medium enterprises who could not cope with some of the demands placed upon them. Subsidies were very low when compared to Japanese, American and European farmers. Agri-SA had been supportive of the land reform process. However the process had been hampered by lack of capacity at the local government level (see document).

Dr Rabie (DA) asked what Agri SA thought of using fertile State land for restitution, it would cost taxpayers less to redistribute state land than private farms.

Ms Crosby replied that they were not responsible for redistribution of state land and they did not know which government department was responsible for state land.

Mr Ralane asked what AgriSA had been doing for land reform. Were they helping emerging farmers and what was their Black Economic Empowerment (BEE) policy?

Ms Crosby replied that farming was not as lucrative as some people thought. It was one of the most highly taxed industry. She urged everyone to assist in shouldering the burden placed on emerging farmers. She noted that the cotton, sugar and grain sectors had struck several deals with BEE partners.

Department of Local and Provincial Government (DPLG) submission
Ms M Molapo, DPLG Deputy Director-General, reported that the Department wanted to create work opportunities for people who survived on subsistence living. She then outlined her Department's priorities on rural and urban development. The Department's objectives in relation to Medium-Term Budget Policy Statement (MTBPS), had been to address asset and income poverty in the form of housing, land and infrastructure. The aforementioned points were in line with the Municipal Infrastructure Grant provided by the Department to municipalities. The Department's Intervention in Urban and Rural nodes had been to institutionalise existing alignment approaches and strengthen co-ordination of the Integrated Sustainable Rural Development Programme (ISRDP). The Department's budget for co-ordination of rural and urban development had been adequate, the three spheres of government needed to work together and integrate their initiatives.

Dr Cwele asked how the Department addressed problems such as free basic services. How did municipalities deal with money owed to them by the provincial and the National Government and how would the Department ensure the validity of the work done by consultants in terms of monitoring and evaluation?

The response was that the Department expected everyone including consultants to qualify and quantify what everyone had been doing. The Department had identified billing problems as one of the priorities in Project Consolidate.

Ms Taljaard enquired what was the government's vision when they had financed the Nodes. Further, would not financing Rural Nodes lead to rampant urbanisation of rural areas?

Ms Molapo replied that there were no clearly defined lines between Urban and Rural areas. For an example more than 40% of residents in the Durban metro resided in rural or semi rural areas. Development of the rural nodes would not lead to rampant urbanisation but rather it would bring resources to where the people were.

Mr Ralane asked about possible under-spending.

Ms Molapo answered that Departments had to account for the reasons they had not done what they were supposed to do.

Mr Schneemann asked the Department if they had been budgeting specifically for the nodes.

Ms Molapo replied that co-ordination of the funding and planning process was supposed to take care of marginalised areas. The Department did not prioritise one area over the other.

The Chairperson invited the Department to submit their financial projections.

Development Bank of Southern Africa (DBSA) submission
Dr M Gantsho, Chief Executive Officer, reported to the Committee that DBSA had focussed on infrastructure development prompted by the challenges facing the country. He said there had been a need for a shift in resources from provincial and local government to the Urban and Rural Nodes where development is currently taking place. He made an example of providing sanitation in rural areas, saying that it was difficult because of the huge distances between settlements. The CEO described the role of DBSA as financier, advisor and funder, and explained their challenges (see document).

Ms Taljaard asked how the DBSA monitored a huge budget of R165 billion across different departments. What had been the capacity of the bank in absorbing municipal bonds? How private capital would leverage with the Municipal Infrastructure Grant (MIG).

Dr Gantsho replied that DBSA was not subsidised by the government but it raised its funds in the capital markets When proposals had been submitted, usually those proposals had also been submitted to other sources. The DBSA would look at social and technical sustainability and the environmental impact of the proposals.

The DBSA had not committed funds to Municipal Bonds but only provided guarantees and collateral for various exposures. The bank had started with larger municipalities and would later move to smaller municipalities so as to enable municipalities to succeed when they accessed capital.

On the MIG, he said that DBSA had collaborated with the Department of Provincial and Local Government at operational level. Most smaller municipalities had not been aware of those funds and how to access them. Municipalities had to schedule projects according to poverty alleviation or economic type.

Dr Rabie asked the DBSA what had been their role in provision of transport infrastructure.

Dr Gantsho replied that the bank had not been involved in transport.

Department of Water Affairs submission
Mr D Muller, Department Director-General, reported that forestry had played a key economic role in poverty eradication. This was in the form of forestry management, wood production and processing of wood products. He also highlighted the role of forestry in tourism. Water was and would always be vital. The Department had been working with municipalities to provide water as a free basic service guided by the indigent policy. Forestry had been supporting activities involving bee keeping, fruits, plants such as medicinal plants for surrounding communities. The Department had noted with concern the backlog on provision of sanitation in the rural areas. There had been a need to improve capacity at municipal level to provide such services.

The Department had participated in regional partnerships, for example, shared rivers was a model. There had been inter basin development between Swaziland, Lesotho and Mozambique. The Department was not responsible for water services infrastructure but rather the DPLG was responsible for such issues.

Ms M Bengu asked why the Department had planted water guzzling gum trees instead of the indigenous wattle trees in Northern Kwazulu-Natal. Her concern was the fact that South Africa had been declared the thirtieth driest country in the world.

Mr Muller replied that licensed forestry was based on what was available in a catchment area. The type of tree that was planted depended on economic demand of a tree type and availability of water.

Dr Rabie enquired what type of trees would be planted on the 60 000 hectares of land released for emerging foresters. What were the Departments plans about water shortages in Cape Town.

Mr Muller replied that Cape Town would never run out of water. However if that were the case, desalination had always been an option. She again said the type of tree planted depended on economic demand of a tree type and availability of water

Mr Schneemann asked what the Department would do to about its huge budget rollover, and what would be the impact of the R58 million late payment to service providers.

Mr Muller replied that because drought relief funding had been gazetted later in the financial year, then funds had to be rolled over. The second question did not appear to have been answered.

The Chairperson requested the Department to submit their projected cash flow.

SA Local Government Association submission
After the lunch break, Councillor M Mvoko said that the capital expenditure emphasis of the Medium Term Budget Policy Statement (MTBPS) was particularly important, as it had many implications for municipalities. SALGA was very happy with the emphasis, and with the social security aspect, as this had an impact on the indigent. Although an additional R2.8 billion would be allocated to local governments, municipal budgets still consisted of about 90% own revenue and many municipalities were struggling to meet their developmental mandates. Own revenue had always been the basis from which the Treasury had allocated funding, but there were fundamental problems with the approach, particularly the limited tax base and the ever-growing number of indigents. SALGA supported the review of the local government equitable share allocation formula to develop a simple formula that balanced demand for basic services and took into account the municipality's revenue raising capacity. Municipalities were struggling with situations where some functions went to local government, either by devolution or assignment, and local governments were either not ready or not funded for the challenge. Disaster management was now at district municipal level, as was environmental health. This also occurred by default at times, and local government had to assume some functions, such as roads. A similar situation existed in terms of services to institutions where the function was that of national government. A review of the equitable share formula might address this point. Concentration on the capital budget meant that municipalities would now face consequential operating costs such as maintenance and human resources. It was hoped that this would also be included in the review.

It was crucial that the process of reviewing the local government fiscal framework which focused on the reform of regional services council (RSC) levies, the introduction of new property rating and the assessment of the impact of the restructuring of the electricity distribution industry (EDI) be completed. The Treasury was talking about abolishing the RSC levy at some time. It was hoped that local government would be involved in the determination of an alternative to the levy. The Property Rates Act remained a challenge and some funding allocation was needed. In some municipalities, the cost of valuations was higher than the revenue they would realise. Assistance should be allocated to these municipalities by need.

Some important issues relating to the budget were raised. The financial sustainability of municipalities was imperative and was the responsibility of all spheres of government, not only local government. Some municipalities had not yet fully established themselves as constitutional governments by complying with constitutional laws. Care should also be taken to achieve economies without compromising service delivery and national policy. SALGA further felt that more emphasis should be placed on further measures to create more jobs for unskilled labour.

Mr Nene said that he hoped the issues raised had also been raised at the appropriate forum, in this case the Budget Forum.

Mr T Ralane (ANC, Free State) asked for an opinion on the impact of the capital budget on maintenance. He had observed that as development occurred, infrastructure came under pressure, as had been the case recently in Rustenburg. Existing infrastructure had experienced very serious pressure, particularly in terms of water delivery. There was also the example of the pressure on electricity in Johannesburg. Problems occurred because municipalities did not anticipate and budget appropriately for this pressure. He agreed that there was a need for maintenance but said that infrastructure development needed to be matched with development and a balance sought.

Mr Mvoko replied that this was a problem that was similar to local government's problem with unfunded mandates. Local government would, for example, be allocated 1 400 houses to build, but would know that the municipality could not accommodate the services required. The Provincial MEC might then say that funding had been provided, but councillors were not spending it. SALGA was waiting for the Municipal Infrastructure Grant (MIG) to capacitate local government, as there was too much pressure on existing infrastructure. MIG allocations also did not address backlogs so the pressure would remain until it did so.

Dr S Cwele (ANC) asked whether there had been any problems with the transfer of funds for free basic services and asked what the key challenges were in managing these transfers. He referred to the monies owed to the municipalities, particularly by other spheres of government and big business. When ordinary people did not pay their bills, their supplies were cut and their homes sold, but he did not see any sale of property belonging to big business or the government. He asked whether the problem was the result of inefficient billing systems.

Mr Mvoko replied that the latest finding was that local government was owed R28 billion, but there was a question as to how much was collectable. Some debtors were indigent and some debt was simply not collectable. There should be an attempt to address how much could be collected. The billing system was part of the Council's policy on debt collection. He would supply a written reply with a detailed breakdown of debt by big business and other spheres of government.

Mr D Botha (ANC, Limpopo) asked SALGA's views on district councils. The only income of these councils was levies. What would happen if these were removed? District councils were also taking on the role of municipalities, where municipalities lacked capacity, instead of capacitating them, and this was creating another type of government. He asked SALGA's views, as both SALGA and the district councils were really there to capacitate municipalities.

Mr Mvoko replied that if the district municipality did not provide capacity in a Category B municipality, it was up to the Category B municipality to raise the issue. The councillors were the same people and these were not separate spheres, so it was an anomaly if this was happening.

Ms D Robinson asked for an opinion on unfunded mandates, such as libraries, and asked whether any pressure was being brought to bear to find funding.

Mr Mvoko replied that the question of unfunded mandates was a difficult one. Either local government had to provide the services, or someone else had to. Another example was primary health care, for which local government was supposed to act as an agent for provincial government. In the Eastern Cape, local governments had not received funding from the provincial government for four months of this financial year. What were the local governments supposed to do? There was no way that they could say they were able to bring any pressure to bear, they simply provided the service and hoped that someone would come to the rescue.

The meeting was adjourned.


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