Division of Revenue Bill 2009/10: input by Financial Fiscal Commission & Departments of Education & Health

NCOP Finance

24 February 2009
Chairperson: Mr T Ralane (ANC, Free State)
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Meeting Summary

The Departments of Education and Health and the Financial Fiscal Commission briefed the Committee on the 2009/10 Division of Revenue Bill. The Department of Arts and Culture was barred from presenting their submission, as it did not have the required documentation that the Committee expected.

The Financial Fiscal Commission complained of the complexity and the voluminous size of the Division of Revenue Bill. The FFC recommended a comprehensive review of the Bill. They said that there would be strong pressure to proliferate conditional grants during the 2009/10 financial cycle. However, new grants should be subjected to rigorous analysis before being introduced. The FFC welcomed the attempts of government to address unemployment through the Expanded Public Works Programme (EPWP) as well as improving transparency and certainty of funding that allow for better planning. The FFC did indicate that a cautious approach had to be adopted so that government  could actively monitor and evaluate the impact of skills development within this programme.

The Chairperson disagreed that the Bill was unwieldy.
He felt that the proliferation of provincial conditional grants was not such a big issue as the National Council of Provinces could exercise its oversight function to ensure correct spending. Members complained about the long delays for disaster relief aid with beneficiaries waiting far too long for financial relief. They raised their concerns that many poorer and weaker municipalities did not have the capacity to administer a new tax regime as a replacement for the Regional Services Council levies.

The Department of Education provided an overview of the 2009 MediumTerm Expenditure Framework policy options: The extension of the no-fee schools scheme to Quintile 3 schools; Grade R and other infrastructure, Reduction of Learner: Educator ratio and Inclusive Education. National Treasury had allocated R21, 287 171 billion to DoE for 2009/10. The DoE had allocated R489 million to the National Schools Nutrition Programme to address hunger amongst poor learners and this programme would also be rolled out to secondary schools. It provided its key outcomes for the previous year’s grants for FET College Recapitalisation, National Schools Nutrition Programme, HIV/AIDS awareness, Disaster Management. It then looked at the allocations and planned outputs for the 2009 MTEF. Lastly DoE discussed the new grant for technical schools recapitalisation.

Members raised their concerns about the poor implementation of the National Schools Nutrition Programme in provinces. Mismanagement and misalignment of that budget had a negative impact on the programme. Members welcomed the extension of the programme to secondary schools as well as to Quintile 3 schools. They told DoE that the learner transport issue had to be sorted out as vulnerable children always suffered due to the incompetence and blame-shifting of the transport and education departments.

The National Department of Health updated the Committee on the details of the six grants, including the specific allocations according to the Medium Term Expenditure Framework in provinces. These included the Comprehensive HIV and AIDS Conditional Grant, the Forensic Pathology Services Grant, the Hospital Revitalisation Grant, the National Tertiary Services Grant, the Health Professionals Training and Development Grant, and the Health Disaster Response (Cholera) Grant. The Health Disaster Response (Cholera) Grant was reported as a once off allocation of R50 million as a direct response to the cholera situation in Limpopo.  The Department had addressed the monitoring and evaluation issues raised previously by the Auditor-General. The presenters emphasised that health services were disease-burden driven and in light of this the Financial and Fiscal Commission and National Treasury formulae on the provincial equitable share and conditional grant did not address the intended purpose in many cases.

The Department objected to the provincial allocations of additional funds made by the National Treasury on the Comprehensive HIV and AIDS Conditional Grant. A patient must complete any treatment programme once it was initiated. This forced provinces to make the decision not to initiate new patients, as the available funds could not support such initiation, and this was a national problem, as more people in South Africa were becoming infected. The Department was in discussions with the National Treasury on this matter and highlighted the need to anticipate potential pressures.

Members raised the question of whether the intended purposes of the spending were achieved, and pointed to the Financial and Fiscal Commission (FFC) views on the proliferation of conditional grants. The credibility of the numbers quoted for intended beneficiaries of the Comprehensive HIV and AIDS Conditional Grant were questioned, and so were the implications for under funding of the Comprehensive a HIV and AIDS Plan and the extent of its dependency on donor funding. Members were also concerned about the Forensic Pathology Services Grant, its final date of 2010/11 and the implications for the criminal justice system. They asked if a review would be undertaken, as there had been under performance on this grant to date. The efficiency of spending was queried, as was the rationale behind the withholding of funds in certain provinces, in the context of budget cuts. The Chairperson ruled that questions on whether there were sufficient mortuaries and on the Department of Justice's role in improving forensic pathology service would be better dealt with during discussions of the line functions. The Department and National Treasury would also have to resolve the issue of Occupational Specific Dispensation to assist the incoming administration. The Committee noted the emphasis on the questions of sustainability, the quality of the service provided and the impact of service when evaluating any department. Members commented that HIV and AIDS was a critical issue, and the incoming Select Committee on Finance should also receive a report on the progress made on the issues raised. The Committee asked the National Department of Health, the Department of Provincial and Local Government and the National Treasury to re- look at all the matters in the context of the equitable share and the possible use of contingency reserves. These discussions should pay particular attention to how stability, once achieved, could be maintained in the context of limited resources.

Meeting report

Financial Fiscal Commission (FFC)
Key Strategic Issues
Mr Bethuel Setai (Chairperson, FFC) noted the complexity of the Division of Revenue Bill and the voluminous size of the actual document. Thus te FFC called for a comprehensive review of the DoRA.

In terms of Conditional Grant proliferation, strong pressure would be applied to proliferate even more conditional grants during the 2009/10 financial cycle. They advised that all new grants should be subjected to rigorous analysis before being introduced.

Mr Setai noted that there had to be transparency in the appropriation of capacity development grants as well as the collective coordination and evaluation of capacity building programmes.

General Observations on the Bill
Mr Bongani Khumalo (Deputy Chairperson, FFC) said that the FFC had made five general observations on the Bill that pertained to Sections 15, 23, 24(c),42 and 38 of the Bill. The FFC was satisfied with the amendment that had been made to Section 15 to replace “other investment” by “support of” as this would tie down the objective towards investment in the built industry.

The FFC welcomed the attempts of government  to address unemployment through the Expanded Public Works Programme (EPWP) as well as improving transparency and certainty of funding that allow for better planning. The FFC did indicate that a cautious approach towards the EPWP had to be adopted so that government could actively monitor and evaluate the impact of skills development within this programme.

Conditional Grants to Provinces
Mr Khumalo noted that nine conditional grants valued at R18 billion had been added to the provincial fiscal framework. According to the framework, all nine provinces had to share R60 million for Agricultural Disasters, R150 million for Housing Disasters, R50 million for Health disasters, R11, 5 billion for Public Transport Operations and R1, 4 billion for EPWP, amongst others.

He was concerned with the poor size of the disaster relief grants as this was not sufficient to spread across all the nine provinces, nor was it permanent. The overall disaster management framework had to be reviewed as well as a coordinated effort by all government departments to allocate funds towards a disaster management fund.

Local Government Conditional Grants
He noted that the Rural Transport Services and Infrastructure Grant (RTIG) was in its pilot phase and that the Department of Transport (DoT) would give feedback before it was eventually rolled out. The FFC had indicated that it would evaluate the effectiveness of this grant in addressing pertinent issues in the rural areas.

The Capacity Development Grants (CDG) would also be assessed to ascertain the impact of these grants against improvements suggested by the Auditor-General’s Report on Municipalities. The FFC was thus of he opinion that priority had to be given to expand these grants to poorer and weaker municipalities.

Comments on Government’s response to 2009 MTEF Recommendations
Mr Khumalo said that the FFC welcomed the in-depth response to all its recommendations by government. The FFC was of the view that government should provide details around the implementation of recommendations and progress over the medium term expenditure period.

Specific issues and FFC comments
The FFC had recommended that the learner transport function needed to be defined, to which government had agreed. Government noted that the Department of Education (DoE) was responsible for the function of learner transport and the DoT was responsible for the regulatory function for learner transport, but there had been many provincial departments of education that did not agree.

Augmenting Local Government Revenue
Government had agreed to an FFC recommendation to replace Regional Services Council Levies with a good local tax. Since the abolition of the RSC levy, government had utilised VAT zero-rating of municipal property rates and a replacement grant as a transition measure. The FFC was also of the opinion that municipalities had to continue searching for appropriate taxes

Mr Ralane said that it was very important that all the necessary time frames for disaster grants should be in place, as government took very long in paying out funds to beneficiaries.

Mr Z Kholweni (ANC, North West) agreed with Mr Ralane and said that any shortcomings with regard to time frames had to be sorted out.

On the issue of learner transport, Mr Kholweni said that provincial education departments should not be allowed to deprive learners of education and that the problem had to be addressed.

Mr Khumalo replied that a follow-up meeting with the DoE had been held to ascertain whether the learner transport issue had been addressed, but no consensus was reached as five provinces had not agreed to the directives of National Government that outlined which department was responsible for the various functions.

Mr E M Sogoni (ANC,Gauteng) asked whether the FFC proposed that more tax be instituted.

Mr Khumalo replied that the FFC had not proposed more taxation, but merely indicated that municipalities could tie their taxes to service delivery as its residents could then see what their taxes were being spent on.

Ms A Nchunu (IFP, Kwazulu-Natal) said that many poor and weak municipalities depended on the RSC levy and could thus not be expected to implement new tax regimes, given the institutional constraints that plagued these municipalities. In many instances children from these municipalities received sub-standard education, with those that had made it, opting to migrate to metropolitan areas.

On the issue of conditional grant proliferation, Mr D Botha (ANC,Limpopo) said that he understood National Treasury to have indicated that provincial governments had to present a business plan if they wanted to access funds.

Mr Botha noted that it was of paramount importance that the delay in paying out funds to disaster hit areas should be accelerated as many people were still waiting for their pay outs. The FFC recommendations had to detail how this could tedious process could be shortened.

He added that fuel levies only benefited the rich, especially in the metropolitan areas and that municipalities situated in his province did not have institutional capacity to introduce their own taxes. He asked how the tax regime would be implemented.

Mr Ralane replied that Section 38 already addressed what had to be done in the case of disasters and that the FFC could not address this issue as it fell outside of its mandate.
Mr Sogoni asked what the FFC recommended should be done to speed up the availability of disaster relief aid. He said it was an important issue as many beneficiaries, tired of waiting on government to deliver, simply disappeared.

He added that metropolitan municipalities would not have a problem to implement their own tax regimes, but that rural areas lacked the competency to implement their own tax regimes as many of them were 100% depended on conditional grants. He noted that many municipalities and provinces would be very wary of implementing new tax regimes as it might scare off investors. More clarity was needed on the proposed new tax regimes and the Auditor-General’s (AG) report on municipalities.

Mr Kholweni noted that he had expected more information on the norms and standards that pertained to the implementation of boundary re-demarcations.

Mr Khumalo replied that the Constitution had assigned tax functions to municipalities and that those poor municipalities, which depended on conditional grants, could not be expected of to raise their own taxes. He said that the FFC was aware that municipalities had different tax capacities, but that it should not serve as  a reason not to look for other avenues of raising revenue. Some provinces had the economic base to charge fuel levies and that provinces such as the Western Cape had already indicated that it would welcome a fuel levy. He said that the issue of tax bases, whether equal or unequal, had not been a big problem in discussing instruments of service delivery funding. The onus was on individual municipalities to decide how they would engage on the tax issue.

He said that the FFC had on many occasions raised the problem of financial mismanagement as many provinces did not spend their conditional grant allocations as prescribed. The FFC had made recommendations that would address this serious problem affecting service delivery as many provinces just stated that their programmes had not been budgeted for. This was largely the reason why projects were not fully completed as funds had been diverted to fund other projects.

Mr Tebogo Makube (Project Manager, Fiscal Policy: FFC) said that the Auditor General Report on Municipalities had been linked to the Capacity Development Grant as that grant had to be strategically focused. It also related to revenue and expenditure as many poorer municipalities could not afford to employ a Chief Financial Officer (CFO). Capacity programmes must be tailored so that it could adequately assist municipalities and serve as a preventive measure to minimise issues of financial mismanagement.

Mr Ralane said that the DoRA was not a complex document and that the biggest sources of consternation was due to mismanagement, misalignment of projects, lack of proper planning and incompetence. The various frameworks detailed in the DoRA were clear on what had to be done.

He added that the proliferation of provincial conditional grants was not such a big issue as the National Council of Provinces could still exercise its oversight function. The Committee had to guard against the loss of funds where the equitable share to provinces had been concerned. Conditions had to be attached where national priorities were concerned as well as the need to evaluate the performance of these grants. He noted that this also raised problems of discretion in terms of over- and under spending on the side of the provincial governments who administered these grants.

He stated that the problems concerning the National Schools Nutrition Programme (NSNP) should also be addressed as government had allocated enough money towards this programme. He said perhaps it was time for government to attach conditions to all grants dispensed to provincial and local authorities.

Department of Arts and Culture (DAC)
Mr Ralane said that he had browsed through the DAC document and that it did not contain the relevant information. He said that DAC had to go back to the drawing board and would thus not be allowed to make their submission, unless it included the relevant documentation.

Dr Graham Dominy (DAC Chief Director, Heritage, Archives and Libraries) said that the business plans were still in draft form and due to be finalised soon.
Mr Sogoni said that NT allocated funds to departments based on business plans that had to be submitted well in advance. He said that he was worried as it now meant that no allocations could be made to DAC
Mr Kenneth Brown (Chief Director: Intergovernmental Policy Planning, National Treasury ) said that DAC had been hopelessly late as departments had already submitted their business plans well in advance for the 2010/11 financial year.

Department of Education (DoE)
Mr Duncan Hindle (Director-General, DoE) briefed the Committee on the 2009/10 Division of Revenue Bill. He noted that the NT had allocated R21, 287 171 billion to the DoE for 2009/10. He stated that the DoE had allocated R489 million to the National Schools Nutrition Programme (NSNP)) to adequately address hunger amongst poor learners. The NSNP would also be rolled out to secondary schools. He also stated that the DoE had extended the no fee schools scheme to Quintile 3 schools as well.

Mr Hindle said that education consumed approximately 5,7 % of Gross Domestic Product (GDP) over the 2009 MTEF period. Provincial spending on education had amounted to 86,6 % of total education spending.

He then assessed the previous year’s performance and future planned outputs for DoE’s Conditional Grants: FET College Recapitalisation, National Schools Nutrition Programme, HIV/AIDS awareness, Disaster Management. Lastly he discussed the new grant for technical schools recapitalisation.

The DoE had allocated R1,583 103 billion to the NSNP during the 2009/09 financial cycle, but the budget had to be revised.

The DoE indicated that 17 899 schools had been targeted for the NSNP, with 6 million learners receiving feeding. Current allocations provided for the average meal cost set at R1,75 per learner due to inflation adjustment received during the Adjustment Estimates.

In terms of HIV/AIDS awareness, all nine provinces did not spend their allocated budgets. It was noted that Limpopo only spent 27,03 % of the budget. The Free State spent about 91,19 % of its HIV/AIDS awareness budget. The DoE said that orientation meetings had been held with parents and communities to improve awareness and support for the programme. (For more info, see document.)

Mr Ralane said that despite the additional R 2, 7 billion that had been allocated by NT in 2008, several provincial DoEs had not spent this money. He noted that had the Committee not intervened, the money would have gotten lost in the system. He said that the national DoE should verify whether this money had been used.

He added that the NSNP had been very effective in fighting hunger amongst school children, but that more had to be done in problematic provinces, such as the Eastern Cape. Any form of intervention had to be pre-emptive in nature, instead of late interventions. The allocated funds had to be used, but instead mismanagement of the funds had led to a situation where children received meals only for three days, instead of the prescribed five days. Provincial DoEs should stop with all their stories and the national DoE should exercise much stronger oversight and monitoring over these funds. The National Treasury could not withhold the funds, as children would inevitably suffer more. 

Mr Botha asked why more money had been allocated to provinces for the NSNP as well as the HIV Programme, when it was clearly evident that they made themselves guilty of under spending on very important imperatives. He was concerned with the under spending by Limpopo on its HIV/AIDS Schools Programme (27% spent). Had the DoE investigated why provinces under spent in this manner?

Mr Ralane said that the onus was on the DoE to investigate why provinces under spent. He stated that the Limpopo Provincial Government had indicated that the reason for the low expenditure on HIV/AIDS awareness had been due to the fact that it only hosted awareness campaigns and events over weekends. Perhaps the DoE should consider withholding these funds, otherwise the problems would persist?

Mr Sogoni commended the DoE on the extension of the NSNP to secondary schools, but said that the devil was in the detail. He had a major problem with schools only feeding their learners three days a week, instead of the prescribed five days. The Eastern Cape had coupled their School Nutrition Programme (SNP) with job creation, but that even this was a problem as it failed to make payments to these small businesses. At the moment there was no uniformity in the NSNP as all nine provinces had their own modus operandi, without any real alignment as many schools had supplemented their nutrition programme with vegetable gardens. He said that it became clear that the national DoE had to come up with clear norms and standards on the school feeding schemes.

He said that it seemed that the DoE was tightening its belt as there had been no allocation made for infrastructure development. He asked whether this meant that no schools would be built during the 2009/10 financial cycle and whether South Africa could afford sacrificing this as many classrooms were overcrowded. He also said that the issue of learner transport had to be addressed as many provincial governments failed in their duties by pleading poverty, yet they had received adequate funding.

Mr Ralane said that the Eastern Cape had always been a chronic under spender and yet the province documented the largest expenditure on the NSNP. He noted that something was amiss and that somebody must have misled the Eastern Cape Premier on what the real situation was.

Ms Nchunu asked whether the FET Colleges included comprehensive high schools and whether any bursaries had been made available to deserving rural learners. She also had a problem with the locality of FET Colleges as they always seemed to only be in urban areas.

Mr Sogoni said that it seemed as if FET Colleges were orphans as no one wanted to assume responsibility for them. He also asked how poor learners would be assisted to access education at these FET Colleges.

Mr Hindle replied that substantial bursaries had always been available and that government had allocated R300 million a year to be used as bursaries. The legislation that governed FET Colleges had granted them a degree of autonomy and this had led to the ambiguity that existed. The national DoE had entered discussions on this matter, but that more engagement was needed. FET Colleges were not only located in urban areas, but also in rural areas and that if a comprehensive school administered technical courses then it fell within the ambit of FET Colleges.

Mr Hindle noted that the allocations for learner transport and infrastructure development had been classed under additional allocations and that there had been a significant rise in infrastructure development spending. It was very difficult for the national DoE to regulate learner transport as provinces ultimately had their own procurement processes. Some provinces had their own contractors, whilst the national DoE had its own database of transport companies. DoT had indicated that they were best suited to address issues of transport.

On the issue of the quintiles, Mr Hindle said that the national DoE made use of data provided by Statistics South Africa (StatsSA) and had knowledge about the questions that had been raised about the quintile system. He said that unless a new formula was created, the DoE would stick to the quintile system.

He said that it was difficult to introduce minimum norms and standards for school feeding schemes as all of the nine provinces were different in their approach. In the Western Cape, centralised kitchens had been set up that served as the distribution point to schools as provinces operated within their immediate environment. The national DoE had provided direction, but that it was rather complicated.

He noted that Minister of Education, Ms Naledi Pandor had announced that the national DoE would work very closely with the provincial DoE in the Eastern Cape to provide assistance to this troubled province.

He stated that provinces should not be blamed for the R2, 7 billion bungle as there had been internal problems with the allocation process. Provinces had to adjust their budgets against a revised allocation and the national DoE recognised that the additional allocations had been skewed.

On the issue of HIV/AIDS, Mr Hindle said that the last allocation to Limpopo had been withheld due to the inability of the province to spend its allocated budget for HIV/AIDS awareness. Limpopo had to account for their spending patterns, before they could receive the funds. His department would monitor and follow up on the issues that had been raised by the Chairperson.

Mr Ralane noted that the allocations towards the NSNP had been to feed hungry children and not create jobs. If the intention was to create jobs, then it would be secondary to what the funds had been intended for.

Mr Brown said that there needed to be a proper learner transport system as well as a separate dispensation for rural areas as many of the problems with learner transport had been experienced in rural areas.
He added that a larger discussion was necessary around the locality of FET Colleges and their strategic importance. He said that FET Colleges had to move in the direction of Higher Education.

He said that currently R5 billion had been spent on infrastructure development and that NT wanted to see the budget grow to between R7 and 8 million. NT was currently involved in discussions on how best to accelerate infrastructure spending on education. Modes of implementation also had to be discussed.

Mr Sogoni said that he had always been concerned with infrastructure development and called on NT to investigate what happened to the R2,7 billion. He found it strange that a province like the Eastern Cape which had thousands of mud schools, only managed to build 50 new schools.

Mr Ralane said that an assessment also had to be done on the capacity of both the national and provincial Departments of Public Works (DPW). He said that departments also pleaded poverty, but failed to spend the funds allocated to them for critical service delivery objectives. The poor showing of provinces was not just an indictment on the national DoE, but also on the Committee. The Committee had to exercise more rigorous oversight and Parliament had to interact in a manner that was more constructive and where pertinent issues were raised.

National Department of Health (NDOH) briefing
Mr Thami Mseleku, Director-General: Department of Health, reported that the National Department of Health (NDOH) managed five conditional grants under the current Division of Revenue Act (DORA) and had added one new grant, the Disaster Response Grant (Cholera-Limpopo). The new grant was a direct response to the cholera problem and should not be seen as an ongoing matter. The five ongoing health grants had been part of the health system since 1998 and accounted for about 95 % of the total NDOH budget.

Mr Mseleku listed the six current grants as: the Comprehensive HIV and AIDS Conditional Grant, the Forensic Pathology Services Grant, the Hospital Revitalisation Grant, the National Tertiary Services Grant, the Health Professionals Training and Development Grant, and the Health Disaster Response (Cholera) Grant. He explained the detail of all of the six grants, including the specific allocations according to the Medium Term Expenditure Framework (MTEF) in provinces.

There had been real growth in numbers of people needing treatment under the Comprehensive HIV and AIDS Conditional Grant. The NDOH had received much less from the National Treasury than its initial bid, and this under funding had implications for the future of the response on HIV and AIDS. Some provinces had responded by using part of their equitable share, and others were already projecting overspending in response to the growing numbers of patients. The Department was engaged in efforts to co-ordinate with the donor organizations, in an attempt to mitigate the potential problems that under funding would create. The Department had already had some success with assistance to the Free State and the Western Cape from the President's Emergency Plan for Aids Relief (PEPFAR).

Mr Mseleku noted that the Forensic Pathology Services Grant was due to finish in 2010/11, as its purpose had been to refurbish and reinvigorate South Africa's forensic pathology services. The grant had only received an inflationary adjustment for the financial year. The Hospital Revitalisation Grant figures had to be revised down, owing to the budget cuts necessitated by the global economic crisis. The Department had to revise the allocations for the grant and the strategic plans and budgets for the provincial departments. The focus would be on current projects with no further future planning. The possible shortfall from 2010/11 onward would affect provinces, unless additional funding was received from the National Treasury.

The National Tertiary Services Grant aimed to provide strategic funding to enable provinces to plan, modernise and transform tertiary health services. Gauteng and the Western Cape still provided the bulk of the tertiary services and received 61,9% of this grant. If better equity in these services were achieved, this would affect these provinces' funding. The funding gap for the 2008/9 financial year was at R 2.2 billion, with projections of R 2,6 billion in 2009/10 and R 3,6 billion for 2010/11. The implications were that the provincial equitable share would have to be used to fund the gap. This meant that funding of primary health care would be reduced, and underdeveloped provinces would not be able to improve equity and capacity building in tertiary services. This was particularly pertinent to the underdeveloped tertiary services in rural areas. From a policy point of view, the Department was exploring the option of having tertiary services administrated at a national level. 

The Health Professionals Training and Development Grant received only normal inflationary increases. Provinces had used this grant for purposes other than the intended purpose. This was being investigated and the immediate response had been to shift part of the grant to education.

The Health Disaster Response (Cholera) Grant was a single allocation of R 50 million for 2009/10 (Mr Mseleku noted that this was a correction to slide 35) to assist the cholera situation in Limpopo. He noted that Mpumalanga had had more challenges with Cholera due to internal management of water quality in the province. Limpopo, being on the border with Zimbabwe, meant that the cross over of cholera from Zimbabwe to this province was unavoidable. The different nature of the situation determined the allocation of the grant to Limpopo.  Broadly, the Auditor-General was satisfied that the Department had addressed the issues of monitoring and evaluation raised previously. The goal was to maintain this position in the final audit of the financial year.

Mr Mseleku then addressed the provincial equitable share, saying that NDOH was of the opinion that the use of the National Treasury and Financial and Fiscal Commission (FFC) formulas on the provincial equitable share and conditional grant was inappropriate. In many cases, the formulas did not address the intended purpose. Health services were disease-burden driven. If more people needed to be treated for a disease in one particular province, a demographic driven equitable share formula would not be able to address the burden of disease in that province. The implication of this was that certain provinces were over-funded while others were under-funded.  The National Treasury was reluctant to change this formula, but these were issues the NDOH would continue to raise.

The Chairperson stated that the last slide of the presentation was critical, particularly in that the provinces had the right to develop their models of health services, which sometimes were not in line with the National Health Strategy. Norms and standards had to be discussed. All points raised in the last slide related to the question of whether the intended purpose of the spending was addressed. He asked rhetorically what would be the point of spending, if the money did not do what it had to do. If the initial planning was wrong, that was a matter for serious engagement. This related to the Financial and Fiscal Commission (FFC) point on the proliferation of conditional grants.

The Chairperson then commented on slide 7 and the implications for under funding of the Comprehensive HIV and AIDS Plan. The finance committees had recently heard much about the new grants and the aims to create jobs. However, he pointed out that sick people were unable to be employed. He asked if the numbers for the intended beneficiaries of the Comprehensive HIV and AIDS Conditional Grant were credible, and pointed to the possibility that they might be overstated. He asked what implications that would have to the Medium Term Expenditure Framework (MTEF).

Mr Mseleku responded that this was one case where numbers did not lie. The projections had changed, and the budget had to be changed accordingly. These numbers referred to actual people awaiting anti-retroviral (ARV) treatment and there were no drugs available to them. In the Free State, 15 000 people had been prevented from initiating treatment, as there was no money to continue with the drug regime for these numbers. The numbers were rising fast. At least three provinces had put their own equitable share into the Comprehensive HIV and AIDS Plan and some provinces relied solely on their conditional grant allocations. Perhaps a formula should be devised to determine the ratios allowed between the use of the conditional grants and the equitable share for the Comprehensive HIV and AIDS Plan.

Mr Kenneth Brown,
Chief Director: Inter-Governmental Relations, National Treasury, responded that certain assumptions had been made regarding the take-up rate of the grant in the future. The approach had been to monitor these figures very closely. Treasury received its information directly from the provincial treasuries on the 15th of each month. Once pressures were detected, there would be further engagement between the National Treasury and the NDOH. A decision was then taken to add money to the allocation, based on the information available at that time. That was what informed the addition of R300 million in the last adjustments budget. Reports that provinces had run out of funds for treatment often came as a surprise to the National Treasury. There were reports from December 2008, showing certain provinces that still had R 6 million in cash.  Given the magnitude of the bids, it was difficult to balance them with the competing priorities of government to get to a national budget. This was an element the budget process needed to resolve. The review of powers and functions by the Department of Provincial and Local Government (DPLG) would also resolve much of this. He referred also to the earlier comment that the decisions by the Executive of provinces might be contrary to the decision taken by national government. 

Ms D Robinson (DA, Western Cape), expressed concern about the Forensic Pathology Services Grant (FPSG) and the end-date in 2010/11. She had recently attended a police forum meeting when she was told that it took between 18 months and 3 years to receive forensic pathology results for criminal investigations. This had implications for the criminal justice system and the link to safety and security in general. She asked if the NDOH could give clarity or assurance on the grant. 

Mr E Sogoni (ANC, Gauteng) concurred with Ms Robinson's views on the FPSG. When the grant was started, there had been consensus that it would end at a predetermined time. He asked if the Department would do a review of whether those plans still applied, as the FPSG had not been able to perform up to now. 

Mr Mseleku responded that the FPSG grant was largely based on the first part of its stated purpose – namely, to assist with the transfer of medico-legal mortuaries from the South African Police Services to the health sector and to renovate them, as many of the mortuaries were in a state of collapse. This was, in effect, a capital improvement grant. There were expenditure problems with all capital programmes. One problem had been negotiating the purchase of trust land, but this had now been resolved. The second element of the grant was intended to provide comprehensive support for forensic pathology services for the criminal justice system. This was a programme under the Department of Justice. The main problem had been the lack of skilled human resources. As a part of the Department of Justice, it was part of the equitable share allocation, and there was now a need to look at the funding. In respect of target dates set for finishing the buildings, funds were already committed, but there had not been inclusion of the timeframes for improving the services. 

Mr Brown, National Treasury, responded that the history of the FPSG was that it was not initially included in the budget of provinces. Provinces required the grant to be costed properly, and asked for the functions to be transferred to the provinces by way of a conditional grant. The NDOH looked at the full capital and operational requirements of the transfer, and the provincial allocations were informed by this process. There was a plan to phase this out, but subsequently it was decided to continue due to the variances in performance across provinces. This meant that the functions and financing would have to stabilised before moving forward. 

Mr Sogoni referred to the Comprehensive HIV and AIDS Plan, saying that it appeared that this was very dependent on donor funding. He asked if this was indeed the case, and, if so, queried the extent of the dependency. 

Mr Mseleku responded that the Department was trying to co-ordinate with the major donor, the PEPFAR. The influence of the global economic crisis had been minimal in this area, as donors assured the Department that funding would continue.  

Mr Sogoni referred to the training of health professionals. In the past the NDOH had closed their nursing colleges. He noted the problems with emigration of the trained professionals and asked if there was any plan for the retention of trained health professionals. 

Mr Mseleku responded that the doctors’ bursaries provided by the provincial departments were not linked to contractual obligations in terms of which those doctors who received bursaries would be bound to serve the provinces for an amount of time equal to the number of years for which the bursary was given. It was not necessarily negative if people were to work abroad as they gained international experience. South Africa had to look at how to expand its critical mass to provide space for doctors to go abroad. He referred to the voluntary doctor exchange programme that Cuba had with Venezuela. The core issue was whether South Africa was training enough doctors of quality. A policy review had suggested that there was a need to reopen the nursing colleges. One issue that needed to be addressed was the burden of disease, and this meant that there was a need to look at other categories of health professionals to expand middle level workers. The required tasks should be shifted from higher to lower levels as it might never be possible to train sufficient numbers of doctors, under the current regime, to cope with the burden of disease.

Mr Sogoni noted that although the principle of withholding funds was perhaps good, the problem was that beneficiaries would lose out. He asked if there were mechanisms to ensure that people were assisted. 

Mr Mseleku referred to the relationship between the provincial equitable share and the project-based approach. The initial idea was that the Department would examine situations where money was locked up due to disputes, which must also be seen against the broader context of certain provinces, due to such disputes, being unable to finish projects. All the hospitals in South Africa must eventually be revitalised. The approach now was not to allocate purely on an equitable share basis, but to look at what the projects of the provinces necessitated. Funds had to be allocated to projects that were moving faster, rather than being automatically locked up in provincial funds. The NDOH had to correct allocations according to the requirements of the Public Finance Management Act (PFMA) and this had led to funds being kept at national level, rather than being transferred to provinces. At the end of the financial year, the Department would have to declare the withheld funds and this then became a matter of roll-overs. This was done upon the advice of the Auditor-General. 

Mr D Botha (ANC, Limpopo), noted that all the provinces had under-spent on the FPSG by the third quarter. The money was there, but the implementation was lacking, and spending was not happening according to business plans. He understood that there had been budget cuts, but provincial health departments needed to spend 100% of the remaining money. 

Mr Mseleku responded that there was an ongoing attempt to improve expenditure. There was a particular problem in the area of capital projects. This could be seen in the Hospital Revitalisation Grant. As previously mentioned, there was a problem with human resources in the implementation of the FPSG and in getting the money spent on time. This aspect had subsequently improved dramatically. 

Ms Robinson asked whether there were sufficient mortuaries, and what the Department of Justice was doing to improve forensic pathology services, which needed immediate attention to ensure that cases were handled properly. 

The Chairperson commented that those questions would be better dealt with in discussion of the line functions. 

Mr Mseleku explained that when patients were started on treatment  under the Comprehensive HIV and AIDS Conditional Grant, they could not skip treatment for even one day. When the provincial departments had a certain number of patients to treat with a certain allocation of money, spending would be structured so that all the patients would complete the treatment, as scheduled, in a set period. If more patients were added, on the basis of the rationale that there was still money, this meant that the patients already on a treatment programme would have to be compromised to accommodate the new patients. He stressed that treatment could not, under any circumstances, be stopped. This was not an arithmetical calculation. It was a serious matter to initiate a patient as, once initiated, a patient must complete the treatment programme. This forced the decision not to initiate new patients as the available funds could support only those patients already in treatment.

Mr Mseleku noted that National Treasury referred to R 6 million still left over in the Free State. He commented that this R 6 million was already committed to patients in treatment. All they could do was stop initiating new patients, as it would be ethically wrong to make a decision to stop treating existing patients. The Department had a constitutional responsibility. The PFMA obliged the Department to declare any additional treatment funding as over-spending as they could not turn patients away. The NDOH had pointed out, to the National Treasury, that the Department was being required to make difficult choices. The discussions on the issue were ongoing. The R 300 million provincial allocation would not be made on the basis of the NDOH’s proposals, but on the basis of the National Treasury’s decision, and the NDOH objected to this. He pointed out that Western Cape had received none of the R 300 million. Provinces, in order to meet the obligations of treatment, had to make different choices quite different to what they had projected.  He thought it necessary to put these differences on record. The NDOH and the National Treasury did agree that there were pressures. However, this was a national issue, and the fact remained that more and more people were getting infected. There was a need to anticipate potential pressures. 

The Chairperson responded that part of the Committee's work was to deal with sustainability of what departments were doing, the quality of the service provided and the impact of service. The issues raised had to be resolved between the NDOH and National Treasury. 

The Chairperson asked if the issue of Occupational Specific Dispensation (OSD) had been resolved. That was a pressure that must be resolved, in order to assist the incoming administration, since health was one of the priorities of government. 

The Chairperson expressed concern about provinces having to compromise on treatment. He asked for the DPLG to work jointly with the NDOH in investigating these matters, because provincial priorities were affected by the reduction of budgets.

The Chairperson also referred to reports about people smoking ARVs and the possible abuses of the treatment, in relation to the new beneficiaries. He asked the Department to report to the next Committee on that matter. He also added that he understood that it was far more expensive to stop treating people, not only because of the implications for the patient's future treatment, but because of the costs of court cases. He therefore asked the NDOH, DPLG, and National Treasury to re-look at all the matters in the context of the equitable share and the possible use of contingency reserves. If stability was achieved, there was a need to decide how it could be maintained in the context of limited resources. The issue of powers and functions also needed to be prioritised in these discussions. HIV and AIDS was a critical issue and the new Committee should also receive a report on the progress made on these issues. 

The meeting was adjourned.



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