Double Taxation Agreements with Spain & Tanzania: adoption; First Quarter Provincial Health Spending on Conditional Grants & Cap

NCOP Finance

06 September 2006
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report


06 September 2006

: Mr T Ralane (ANC) [Free State]

Documents handed out:
Presentation on Double Taxation
National Treasury presentation
Gauteng Department of Health presentation
Kwazulu-Natal Department of Health presentation
Free State Department of Health presentation
North West Department of Health presentation
Limpopo Department of Health presentation
Eastern Cape Department of Health presentation
North West Department of Social Development presentation

Western Cape Department of Health presentation
Northern Cape Department of Health presentation

The Committee was briefed by provincial Health departments on their first quarter spending of conditional grants and capital expenditure programmes. Limpopo, North West, Western Cape, Free State, Eastern Cape, Gauteng and the Northern Cape presented their spending figures for HIV/AIDS, Hospital Revitalisation and Forensic Pathology. Members were concerned throughout that spending levels were low and that lack of capacity and departmental infighting appeared to be the main reasons for this.

In other business, the Committee also unanimously approved double taxation agreements between SA and Spain and SA and Tanzania.

Presentation by SA Revenue Services (SARS)
Mr Ron Van Der Merwe (Manager: International Treaties) gave a brief presentation where he outlined the various articles and protocols with regards to the double taxation convention between the Republic of South Africa, the Kingdom of Spain, and the United Republic of Tanzania for the avoidance of double taxation and the prevention of fiscal evasion with respect to dividends on income. The purpose of the agreements is to remove cross-border trade barriers and investment. This could be done by the elimination of double taxation, prevention of fiscal evasion and resolution of tax disputes. With regards to Spain and Tanzania the Article 5 of the agreement states that there would be no taxation between the countries unless the 12-month time period has passed.

The Chair put the two conventions to the Committee. They were unanimously adopted.

Presentation by the National Treasury
Dr Mark Blecher (Director) begun by outlining the fact that spending on health by the provinces at the end of the first quarter has been fairly low. Expenditure at the end of the first quarter was at 22.9%, which is just below the benchmark of around 25%. However many provinces are projecting to overspend this year by about R1.3 billion with particular problems in Gauteng which has projected overspending figures of around R880 million. This year however looks like it is going to be a strong year in Health expenditure with an increase of 15.8% from 2005. The two provinces with the lowest health expenditure at the end of the first quarter are Limpopo (20.8%) and the North West province (20.9%). Limpopo was the biggest underspender last year at about R310 million. The two provinces with the highest expenditure are the Eastern Cape and Mpumalanga, both with equal expenditure of 24.8%.

With regards to the conditional grants, the biggest concern is the forensic pathology grant, which is a new grant put in place in order to support the shift of forensic pathology services from the South African Police Services (SAPS) to the Provincial Departments of Health. R525 million had been allocated to support the shift but only 3.9% of it has been spent in the first quarter. Spending on the HIV/AIDS grant by the provinces has decreased to 15.1% and on the revitalisation grant spending has also dropped by about 18.4%. Eight provinces have spent less than 10% on the forensic pathology grant. KwaZulu-Natal and the Limpopo province have spent less than 10% of the HIV/AIDS grant, and the Northern Cape has spent less than 10% of the revitalisation grant.
Presentation by the Eastern Cape Department of Health

The presentation was made by Ms L N Jajula (MEC for Health) and Mr M Frasol (Chief Financial Officer (CFO)). Ms Jajula outlined the main points of the presentation which dealt with matters such as g
rants performance, monitoring capacity and service level agreements. She stated that the Department spent 19.97% of the total conditional grant in the first quarter. This was largely due to the fact that there have been improvements in both monitoring and intervention, and with the finalisation of service level agreements with the key stakeholders.

Mr Frasol analysed data trends in allocations, transfers and actual expenditure, and compared expenditure in the first quarter of 2005/06 to expenditure in the first quarter of 2006/07.With regards to grants spending the HIV/AIDS grant is improving and as observed from the 2005/06 financial year the department was able to spend the total grant. This is due to the fact that the costs involved with regards to HIV/AIDS are considerably more than the grant. When compared to the National Transfer, the reason for the over-expenditure in the Health Professional Training & Development programme was due the fact that payment for the second quarter was made at the end of June instead of July 2006.

With regards to the forensic pathology grants: the SAPS currently pay the staff and since no claim has been received from the SAPS for reimbursement, the expenditure is reflected in the books of the SAPS. The department has advertised new posts; however the process has not been completed. Another major item of expenditure has been the establishment of new mortuaries; however spending on these new projects has not commenced.

With regards to the hospital revitalization grant; there has been a slow spending start owing to litigation from the previous financial year. However the contractors were now on site and the expenditure is set to improve during the 2nd and 3rd quarters. The National Tertiary Services Grant has been utilised for tertiary services rendered in the East London, Port Elizabeth, Mthatha Complexes and the Fort England hospital. With regards to service level agreements, all service level agreements had been signed during the first quarter.


Dr Blecher stated that the spending on forensic pathology, R680 000 of R180 million, is extraordinarily low. He expressed concern about the very low spending level.

The Chair argued that since this was a brand new grant improvement should be expected later in the year. He asked if the mortuaries were new buildings.

Mr D Botha (ANC, Limpopo) asked why most provinces started from scratch on forensic pathology.

Mr M Robertson (ANC, Eastern Cape) commented that there appears to be a problem with unnecessary litigation and poorly planned procurement. He asked for more information about forensic pathology, mortuaries, HIV and tendering processes.

Ms L Mchunu (IFP, KZN) said it was good to see that spending on the HIV/AIDS grant was improving, but she wanted to know what it had been spent on and if spending had led to fewer infections.

Mr Z Kolweni (ANC, North West) said a patient that had to be transferred to another hospital had died because the ambulance service could not get fuel in time. He asked how such instances could be avoided.

The MEC replied that she was not aware of the patient in question and encouraged Members to raise such matters so that they are dealt with immediately. The HIV/AIDS grant is spent on anti-retrovital (ARV) centres, the provision of personnel and monitoring of how the grant is used. Providing ARVs however did not lead to a decrease in infections.

Mr L Boya (Head of Department (HOD)) argued that it is not entirely true that the department is starting from scratch on forensic pathology. The department took over from the SAPS, but the SAPS are still paying where it should be the other way around. That was the reason for the low spending. Also, spending on the employment of professionals will only show in later quarters when recruitment was complete.

The department was concerned about the slow start to the building of mortuaries and this accounted for the low expenditure. However, the department was working closely with the Public Works department to accelerate building. Regarding the issue of procurement and litigation, the department was happy to have resolved those cases. It had not been a case of poor legal advice, but because a contractor had challenged the award of a contract.

The Chair commented that the department has projected that it would overspend on forensic pathology and capital projects. He asked how credible these projections were.

Mr Boya stated that their commitments were greater than the budget that was available; they would therefore easily spend their allocations.

The Chair raised the issue of re-allocation of funds. The Northern Cape was of great concern. Last year, everyone was convinced that the Northern Cape was moving in the right direction, but now very poor performance in the hospital revitalisation programme has come to light. He felt this would have to be monitored closely in the second quarter.

The MEC stated that there were quite a number of projects in the pipeline in the Eastern Cape, and that the department was most likely to overspend. Therefore if the Northern Cape could assist in donating some of their grants to these projects, the department would be really grateful.

The Chair told the MEC “not to worry” as they would monitor the Northern Cape’s under spending of the grant.

Presentation by the Western Cape Department of Health

The Western Cape briefing was done by Prof K Hausenhaut (HOD: Health). He began by giving an outline of the provincial expenditure on Health, HIV/AIDS, forensic pathology and hospital revitalisation. With regards to the HIV/AIDS grant, there has been an increase in spending due to the fact that there were at least 19 000 patients at the end of June. They were currently overspending on the grant. He argued that the major challenge for the AIDS Conditional Grant was the growth of the anti-retroviral treatment (ART) programme, and that the increase in the number of patients was exponential. However the biggest challenge still remained how to mount an effective prevention strategy.
On the forensic pathology grant it was important to note that the services transferred from the SAPS with effect from 1 April 2006. In terms of human resources capacity, 149 posts were advertised in January and June 2006. In terms of the hospital revitalization grant, the projects under construction were: George, Vredenburg, Paarl, Worcester and Khayelitsha hospitals. The projects in planning were: Khayelitsha, Mitchell’s Plain, Valkenburg and Phase 2 of the Vredenburg hospital.


Mr Robinson was delighted with progress in the Western Cape but asked if hospital revitalisation will provide emergency assistance to hospitals that are unable to cope with large numbers of patients.
Mr M Goeieman (ANC, Northern Cape) asked why only 3% of the YTD has been spent on infrastructure at the Vredenburg hospital. He also asked for elaboration of the claim that developments at the Mitchell’s Plain hospital were at an advanced stage.

Mr Kolweni observed that there was a shortage of artisans and staff in both the Worcester and Paarl hospitals and asked what strategies had been put in place in order to prevent this from happening in other hospitals.

Prof Hausenhaut replied that building plans were at an early stage and that time was available before actual building began on hospitals. On staffing of new hospitals, he stated that other than the Khayelitsha and Mitchell’s Plain hospitals, the new hospitals would largely be a replacement of existing facilities. The second stage of revitalisation at the Vredenburg hospital would go out on contract soon and spending will thereafter increase dramatically. With regards to Mitchell’s Plain, the awarding of the contract should follow very soon after Khayelitsha.  The shortage of artisans was a national problem and there was a need to look at training of artisans in the building trade.

The Chair asked why a number of forensic pathology appointees had failed to take up their posts and how credible projections of spending on the TIG were.

Prof Hausenhaut said that they went through a process of selection and that there were people recommended for posts; however they took posts elsewhere, and since the department had failed to fill the posts, they had to re-advertise them. Spending projections on the TIG were credible.

Presentation by the North West Department of Health

The North West briefing was done by Ms L Sebego (HOD: Health). She apologised on behalf of the MEC who was unable to attend. There were seven conditional grants managed by the department which constituted 16% of the total budget; however the allocations for the HIV/AIDS grant (specifically for the ARV programme) did not meet the increasing demand. She admitted that spending on the hospital revitalisation and forensic pathology grants were unacceptable. As at June, spending
against allocation amounted to 10.3% for hospital revitalisation and 2.4% on forensic pathology. With regards to HIV/AIDS, the department has put in place a comprehensive care management and treatment programme. One such programme was the ARV programme that was performing beyond its target of 20 488 patients for the year and was already at 19 350 patients by end of July 2006.


The Chair pointed out a contradiction in that the department only spent 14% of the overall budget and planned to underspend on hospital revitalisation, yet wanted to ask for more money.

Mr Kolweni stated that during a recent visit to a Mafikeng hospital, it was discovered that most of the personnel lived in a defective hospital complex. What had been done to sort out this problem?

Mr Botha asked how many forensic pathology vehicles the department had procured.

Mr E Sogoni (ANC, Gauteng) asked if the infrastructure challenges were the problem of the Health or Public Works departments. As for Health department challenges, when would they be resolved?

The Chair argued that service delivery by the department was slow because of infighting and asked about the actual state of affairs in the department.

Ms Sebego replied that the department could not relieve poverty when they underspent. The department was working with Public Works to overcome infrastructure challenges, but the latter department had its own challenges. Infighting in the department revolved around management issues. One of the biggest problems was that officials were not attending scheduled meetings.

Dr A Robinson (Deputy Director-General: Health) claimed that 10 forensic pathology vehicles had been procured, and that they have been specially designed for mortuary purposes in line with national specifications.

Presentation by the Limpopo Province Department of Health

The Limpopo Province briefing was done by Ms J Dlamini (HOD: Health), who apologised on behalf of the MEC who was unable to attend the meeting.  She outlined the fact that the
conditional grants have been the major source of the capital expenditure of the department with an average of 53% of the funds used coming from the conditional grants and 47% from the Equitable Share. With regards to the HIV/AIDS grant there was underspending due to the fact that there was a shortage of qualified medical personnel in posts earmarked for ARV and step-down facilities.  On forensic pathology, there was a delay in delivery of purchased vehicles due to conversions required on some vehicles in order to suit mortuary specifications. With regards to hospital revitalisation, the department had spent all available funds.

Mr Botha asked how many Iranian doctors and Polish specialists had been recruited and for elaboration of the problems experienced with the Polish specialists.

Mr Sogoni asked why the department continued to under spend on the HIV/AIDS grant. He also wanted to know why most provinces struggled with forensic pathology services and why the province had a rollover in the hospital revitalisation grant.

Dr Blecher pointed out that the spending situation in Limpopo, after two years of improvement, had reverted to the old pattern of serious underspending. If this continued, the province could underspend by almost R1 billion this financial year.

The Chair argued that the reason for Limpopo’s underspending was due to the fact that the Health department was linked to Social Development. The underspending was a very serious matter and if it did reach R1 billion, it would be “terrible”.

Ms Dlamini argued that the Polish specialists were not recruited in the correct manner; therefore national government could not support the department. The Iranian doctors were part of a national NGO programme. On the HIV/AIDS grant, mechanisms have been put in place to implement projects, they were monitoring spending and it was starting to increase. The problem with forensic pathology was that there was only one forensic pathology unit in the province, and the department is still advertising the posts. With regards to hospital revitalisation, the department made various grants which in the long run will relieve the situation.

Presentation by the Northern Cape Department of Health

The presentation was done by the Northern Cape Health MEC, Ms E Selao and Dr H Shabir (CFO: Health). The MEC outlined the fact that since the inception of the hospital revitalisation grant, the province had performed very well; however during the first quarter of this financial year, the province was the lowest spender. This was largely due to capacity problems in the Public Works department. However they were discussing ways to improve their co-ordination.

The Chair asked the MEC to act swiftly to sort out the problems experienced in the Northern Cape, as they would not want to delay developments in other provinces such as the Eastern Cape.

Dr Shabir proceeded to outline spending by the Northern Cape during the first quarter. He stated that the total conditional grant allocation showed annual growth of 53.5%, and that the province had spent 39% of its total budget in the first quarter. This clearly showed that the province would overspend on this grant. With regards to HIV/AIDS, there had been a re-adjustment of the business plan in May 2006 and personnel costs were journalised late. In terms of
Hospital Revitalisation there has been a delay in the appointment of contractors. Finally with regards to forensic pathology, personnel costs were journalised late and there was a delay in the delivery of equipment and mortuary vehicles.


The Chair questioned whether or not the Committee should specially investigate the slump in spending of what was a good performing body over the past few quarters.

Mr Goeieman argued that the Committee was indeed given the correct information and the work that the department said it would do had been completed. According to the department, the problems mainly deal with the failure of the contractors to implement certain projects.

Mr Robertson found it hard to believe that there could have been shortages of skills and capacity to deliver on the part of contractors given the rate of unemployment experienced by the province. He felt there might have been some infighting when it came to failure to deliver by the contractors.

Dr Shabir said the biggest project was the mental health project, which is where most of the grant was going. However the contractor spent 40% of the time at the site, but only 7% of the budget. The department would welcome an investigation into the underspending.

Dr Blecher stated that the Northern Cape had clearly over emphasised their capacity; however rather than blaming the province, the departments should all work together in order to solve the problem.

Prof Hausenhaut pointed out that all the provinces had service delivery agreements. Once the contracts had been awarded they became a Public Works function. There was a general capacity issue in the construction industry and it was a big challenge for government.

Presentation by the Gauteng Department of Health

The Gauteng briefing was done by the Acting Health HOD, Mr A Rahman.  He stated that the province spent
R84 million of the R328 million budget for revitalization by 30 June 2006. Over-expenditure of at least R300 million was projected on this grant. This was due to the fact that the propensity to spend on projects increased in 2005/06 and this resulted in fast tracking of delivery. There has also been an increase in project planning and progress compared to the period prior to 2005/06 that was attributed to the increased capacity. In terms of provincial infrastructure; 32, 9% of the R82m allocation was spent during the first quarter. Spending on the forensic pathology grant amounted to R5, 2m which constituted 6,7% of allocated budget.  Finally with regards to the HIV/AIDS grant spending, the figure of 19, 7% was due to increases towards the end of the financial year with the roll-out of projects.

Presentation by the Free State Department of Health

The Free State briefing was done by Mr R Chapman, the Health HOD. He outlined the fact that spending on HIV/AIDS was only 12%, largely due to capacity constraints. In terms of hospital revitalisation expenditure is at 18% as a result of lack of funding for the 2006/07 financial year. In terms of forensic pathology, the first quarter spending was only 5% but this increased to 16% at the end of August 2006 because the grant was only received late in the financial year.


Mr Sogoni asked about projected overspending in both the Free State and Gauteng. In terms of the maintenance of Gauteng hospitals, who was responsible for the delays?

Mr Botha commented that there had been substantial spending improvement in all provinces, except the Northern Cape, compared to the same period last year.

Mr Sogoni inquired about the capital expenditure fund that was not transferred in the Gauteng province. What was being done with that money now?

Mr Rahman stated that the department had launched a number of maintenance strategies such as delegating and decentralising hospital management to all resident institutions. Therefore the maintenance that used to be managed by Public Works has substantially been increased as the local management teams in the hospitals managed it.

The Gauteng CFO [Peter: this person is not identified above] commented on the issue of the capital expenditure fund that was not transferred. She stated that this year they were spending the conditional grants and were not receiving any transfers.

The Chair stated that it was important to follow up on the unfunded mandates, and that provincial treasuries should be made accountable for the fact that there was underspending of funds.

The meeting was adjourned.


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