Negotiating Mandates on the Division of Revenue Bill

NCOP Finance

15 March 2006
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Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE

FINANCE SELECT COMMITTEE
16 March 2005
NEGOTIATING MANDATES ON THE DIVISION OF REVENUE BILL

Chairperson:
Mr T S Ralane (ANC, Free State)

Documents handed out
Division of Revenue Bill [B3 – 2006]
Division of Revenue Bill - Treasury's proposed amendments
Negotiating Mandates of North West, Free State, Xhariep District Municipality & Gauteng
Negotiating Mandates of Western Cape & Limpopo
Negotiating Mandates of Mpumalanga, Eastern Cape, Northern Cape, Western Cape & KwaZulu- Natal

SUMMARY
The provinces presented the negotiating mandates on the Division of Revenue Bill to the Committee. The Department accepted the technical amendments proposed by the Free State. Reservations were voiced over the procedure followed by the Western Cape Provincial Parliament. The Northern Cape, Mpumalanga and the KwaZulu-Natal all voiced concerns over the impact of the provisions of clause 38 of the Bill (the Implementation of Cross-Boundary Municipalities Laws Repeal and Related Matters Act of 2005). Some provinces such as the Northern Cape, complained about the equitable share formula giving them an inadequate allocation. The Committee accepted the proposed amendments presented by Treasury.

MINUTES

Free State Province
The Office of the Premier and Finance Committee of the Free State Legislature resolved to support the Division of Revenue Bill with minor technical amendments.

Limpopo Province
The Portfolio Committee on the Provincial Treasury of the Limpopo Legislature held public hearings on the Division of Revenue Bill. Stakeholders bemoaned the lack of spending on capacity building in government, job creation initiatives, HIV/AIDS counselling, housing provisions and road construction, public transport and community development. The latter was viewed as particularly necessary in terms of environmental issues and small business development.

The Committee resolved to support the Division of Revenue Bill without any amendments.

Eastern Cape Province
The Portfolio Committee on Finance and Provincial Expenditure of the Eastern Cape Provincial Legislature considered the Division of Revenue Bill.

The Committee queried the bases for the downward revision of the municipalities’ equitable share in certain outlying jurisdictions. Though this Committee welcomed the shifting of the social grant function from the provincial to the national sphere of government, it suggested a thorough revision of social services costing for the year 2007/08. The Committee felt that the baselines of social services had been distorted due to the supplementing of social grants by provinces from the equitable share in previous years.

With the above concerns noted, the Committee supported the principles of the Bill.

Northern Cape Provincial Legislature
The Portfolio Committee on Finance and Economic Affairs of the Northern Cape Provincial Legislature considered the Bill. The Committee resolved to support the Bill, but noted three main concerns. Firstly, it felt that the equitable share formula disadvantaged the province. Secondly, it felt that the increased cost of service delivery in the province due to its geography, demographics, the nature of its infrastructure and the human resources challenges was not taken into account. Thirdly, it noted that even though cross-boundary municipalities had been eliminated, funds for certain communities now fully within the jurisdiction of the Northern Cape were still being allocated to the North West Province.

Mpumalanga Province
The Portfolio Committee on the Premier’s Office, Finance and Safety and Security of the Mpumalanga Provincial Legislature considered the Division of Revenue Bill. The Committee subjected the Bill to public hearings process. The Province mandated its members in the National Council of Provinces to negotiate on the basis of seven main concerns.

Firstly, it noted that no funds were allocated to any Province that would be participating in the 2010 Soccer World Cup. Secondly, the Committee raised that while the Accelerated and Shared Growth Initiative of South Africa (ASGISA) was unfolding, no funds had been allocated for its implementation. Thirdly, it noted that the Province received no funds for the rehabilitation and provision of infrastructure demanded by its role as the bulk electricity producing Province.

The Committee put forward that increasing social grants had been putting strain on the financial allocation to Provinces in this regard, and that greater management capacity was needed to steer the process effectively. It also pointed out that since other Provinces sent their nurses to be trained in Mpumalanga before reclaiming them, additional funding in the Further Education and Training College Sector Recapitalisation Grant was necessary.

The Committee further suggested that the "development component" of local government’s equitable share from nationally raised revenue was too vaguely defined. Finally, the allocation of funds as it pertained to former cross-boundary communities was a concern in Mpumalanga as well.

KwaZulu-Natal Province
The Provincial Standing Committee on National Council of Province Matters of the KwaZulu-Natal Provincial Legislature considered the Division of Revenue Bill. It resolved to support the Bill, but raised two issues of concern. The first concern also related to the impact of the provisions of clause 38 of the Bill (the Implementation of Cross-Boundary Municipalities Laws Repeal and Related Matters Act of 2005). Secondly, it submitted that the strategic projects of the Province, such as the Dube Trade Port, should be considered on a similar basis as other strategic projects specifically provided for in the Bill, such as done in clause 10 (the Gautrain Rapid Rail Link).

Western Cape Province
The Standing Committee on Finance and Economic Development of the Western Cape Provincial Parliament considered the Division of Revenue Bill. The Committee resolved to support the Bill, but noted various concerns of which two were substantive. The first of these concerned the re-allocation of funds after the cancellation of an allocation Section 20(1). The Committee felt that re-allocation effectively punished provinces with greater needs for their incapacity to spend sufficiently, and that National Treasury should provide extra capacity to such provinces as a preventative measure.

The Committee further noted that section 22 of the Bill required that money not spent at the end of a financial year in respect of a schedule five or six allocation had to revert back to the national revenue fund, unless the receiving officer could prove that the unspent allocation was committed to identifiable projects. Here, the Committee raised various concerns over the alleged incompatibility of this provision with section 24 of the Public Finance Management Act (PFMA).

North West Province
The Finance and Economic Development Committee of the North West Provincial Legislature considered the Bill. The Committee resolved to support the Bill with no amendments.

Gauteng Province
The Finance Portfolio Committee of the Gauteng Legislature considered the Division of Revenue Bill. The Committee noted that section 9.3(a) of the Bill made provision for designating up to one percent of the Provincial Infrastructure Grant for the acquisition of additional capacity where a provincial department may lack such capacity. In this regard it questioned whether capacity would merely be evaluated on the basis of rollovers. The Committee resolved to support the Bill.

Discussion
In reference to the concern put forward by the Eastern Cape, Mr T Ralane (ANC, Free State) undertook to take up the matter of the downward revision of the municipalities’ equitable share for certain outlying jurisdictions, with the Department of Finance. In reference to the concerns raised by the Northern Cape, it was put to the Committee by the Department that allowance for geographic and demographic constraints in service delivery were allowed for in the institutional component of the equitable share formula.

Process concerns were initially held against acceptance of the negotiating mandate of the Western Cape Provincial Parliament, but this was later put aside. These concerns included that due process had not been followed as the mandate was not signed by the Chairperson of its Standing Committee on Finance and Economic Development but by someone else on his behalf. Also the proposals were those of the provincial treasury rather than the Committee.

National Treasury took the Committee through its proposed amendments. The Committee approved all these, as well as the proposed technical amendments by the Free State Legislature.

The Committee resolved to invite the Department of Local Government, the Department of Water Affairs and Forestry, the South African Local Government Association and the Fiscal and Financial Commission to make further inputs on Section 16 of Bill. This meeting would take place at the same time as that of the final mandates.

Meeting adjourned.

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