Division of Revenue Bill negotiating mandates; Western Cape Inherited Debt Relief Bill briefing

NCOP Finance

04 March 2009
Chairperson: Mr T Ralane (ANC, Free State)
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Meeting Summary

The Committee discussed the provinces negotiating mandates on the Division of Revenue Bill. Eight provinces supported the Bill. The North-West Province did not present their mandate. The Eastern Cape, Gauteng, Mpumalanga, the Northern Cape and Western Cape supported the Bill but felt that there were certain conditions to be met and concerns addressed if the Bill were to be passed. The National Treasury and the Department of Provincial and Local Government addressed the Provinces’ concerns.

After reviewing the negotiating mandates the Committee noted that the Department had not told Members why the grants were underperforming. He stated that there needed to be a broader discussion on the matter.  

Systems had to be put in place to ensure smooth transition regarding the shifting of certain areas from one province to another province. The National Treasury stated that the Demarcation Board had to see that they could not just change boundaries all the time, as the shifts from one province to another had serious implications for provinces and for service delivery. The Committee agreed that the cross-border municipality matter was a very sensitive issue. The problem always started to stabilise but then started again. A small group of people would agitate the rest of the community if they were not happy. However, while the issue was a sensitive one, it was handled appropriately through the legal system. The Committee noted that the situation had to be handled appropriately and efficiently.

The Chairperson added that the Department of Sport had not included municipalities in the planning of the 2010 FIFA World Cup. The municipalities and the Department also had to engage with Integrated Development Planning so that the Integrated Development Plans could reflect the sports facilities that were available. The Committee wanted a situation where the municipalities would engage with their communities to form a plan to determine the infrastructure they needed. The Chairperson noted that when all the departments were invited to these meetings, the departments would send their junior executives who did not know what was happening. The Committee felt that it was important that all sectors and departments coordinated properly. The Committee also felt that there was a need for a District Infrastructure Development Forum so that all investment in districts had to be processed first through the Forum.

The Chairperson addressed the Department of Provincial and Local Government saying that the Extended Public Works Programme’s function was to create employment; however, the Committee was concerned that they were only targeting 45 municipalities. The Department of Public Works had to discuss this with the National Treasury and the Department of Provincial and Local Government. There were 125 low-capacity municipalities in South Africa that should be targeted immediately.

The Department of Provincial and Local Government stated that there was a clause in the Division of Revenue Bill that suggested that transfers from the Municipal Infrastructure Grant should go through the Department’s vote but the monitoring and reporting should be done through National Treasury. After an engagement with the Treasury, where they were joined by the Department of Water Affairs and Forestry, it was found that other departments had the same challenges with their sector load, particularly with reporting. There had been some robust engagement and there had been some challenges around the interpretation of the Bill.

They had agreed that the Department of Provincial and Local Government would compile and submit the changes that the departments proposed to the Bill. The Department of Provincial and Local Government proposed that if there were any ambiguities in the Bill; clarities could be included in a framework of the Bill. The Department then incorporated inputs in to the framework and sent it to the Treasury for comment, so that when the departments approached the Committee, they would all be on the same page. The Chairperson asked the Department and the Treasury to alert the Committee when the framework was ready.

The National Treasury briefed the Committee on the Western Cape Inherited Debt Relief Bill. They explained that the purpose of the Bill was to authorise the over-expenditure of the former Cape Province regional structures. Journal entries were to be effected by the Office of the Accountant-General from one set of government accounts to another and journal entries from the Provincial Accountant-General would clear the overdrafts.

The Western Cape expressed their wish to have the process completed before the start of the new term. The Committee agreed that the Bill would have to be passed as soon as possible.

 

Meeting report

Negotiating Mandates on Division of Revenue Bill
Eastern Cape Mandate
Mr M Robertsen (ANC, Eastern Cape) stated that the Eastern Cape supported the Bill; however, the province stated that there was a need to develop a clear policy on land disposal, the process of accreditation of municipalities for housing delivery had to be sped up and there was a need for reconsideration of the Municipal Infrastructure Grant (MIG) equitable formula. The province stated that historical backlogs had to be taken in to account so that poor municipalities could be assisted to be on par with others. Circumstances specific to each municipality were not taken in to account when the Municipal Systems Improvement Grant and Financial Management Grant were allocated. The province thought that the overload control grant should be brought forward to the 2009-10 financial year and that the Local Government Data Collection Grant should be decentralised to provinces. The Eastern Cape welcomed responses from the government on FFC Submissions but thought that timelines should be attached to the responses.

Mr Kenneth Brown, National Treasury Acting Deputy Director General, stated that there was a clear land disposal policy in the Municipal Finance management Act (MFMA). He would forward it to the Committee. The National Treasury (NT) had already responded to the issue of accreditation at an earlier briefing. He agreed that there was a need for reconsideration of the MIG formula, as well as the local government equitable formula. Mr Brown noted that there should have been a difference in the amount of historical backlogs because so much of MIG had already been spent. The question was whether the NT was measuring all the grants properly. He stated that there were so many capacity building initiatives that were taking place within municipalities that the initiatives had to be streamlined. Provincial Treasury had specific oversight responsibilities within municipalities; but it needed to find a way to manage data. Decentralising the Local Government Data Collection Forum would; therefore, be tricky. The overall management of data would have to be central but the provinces would have to be used to deal with data requirements.

Mr Edgar Sishi, NT Director, addressed the concern that the overload control grant should be brought forward. The major focus of the grant was the building of weighbridges for trucks. The way that the grant was allocated was based on the infrastructure nature of the grant. The funds were allocated based on the readiness of the provinces to expend on infrastructure.

Ms F Makhubu, Department of Provincial and Local Government Executive Manager, stated that the Department of Provincial and Local Government (DPLG) was busy with an initiative called the Data Maintenance Protocol, which was spearheaded by Stats SA as well as the DPLG. The Department was looking at publishing data on an annual basis to address the issue of backlogs and the total infrastructure needs in all provinces.

The Chairperson commented that it was crucial that the Departments addressed the issue of historical backlogs.

Free State mandate
The Chairperson read that the Free State’s negotiating mandate. It read that the province supported the Bill.

Kwazulu-Natal mandate
Kwazulu-Natal supported the Bill.

Limpopo Province mandate
The Limpopo Province voted in favour of the Bill.

Mpumalanga mandate
Mpumalanga supported the Bill; however, the province proposed that the fuel levy benefit be revisited so that it could be applicable to all provinces on an equitable basis. They also proposed that the Water and Sanitation Operating Grant be revisited so that all backlogs could be eradicated, and that proper research was conducted to ascertain how the taxi industry could be included in the public transport system. The provinces asked that capacity building to local government be expanded, demarcation related matters be dealt with effectively, and that research be conducted to ascertain how the current situation of non-registered foreigners currently residing in the country strained available resources and how it could be dealt with. Mpumalanga also wanted to ensure that proper oversight was conducted over service providers who were contracted to provide infrastructure in communities.

Mr Brown stated that the Water and Sanitation Operating Grant supported existing water schemes. The Municipal Infrastructure Grant addressed much of the backlogs. In terms of the taxis, there was a public transport policy that was currently being finalised. Demarcation was a very important issue. The NT wanted to add legislation that would deal with the regulations of budgets in the case of disputes on provincial boundaries. Whenever boundaries changed, given time lags, it would take a year to implement legislation and financial processes.

Mr Brown stated that Mpumalanga’s request that proper oversight be conducted over service providers was an implementation issue that the NT had raised with the Committee before.

The Chairperson addressed the issue of demarcation. The issue depended on timelines and when the problem would be finalised.

Ms Makhubu stated that it was critical that government showed there was sustainability in capacity building. They could do this by ensuring the filling of vacancies within departments and other initiatives.

Northern Cape mandate
The Northern Cape supported the Bill; however, the province noted that the conditional grant of the province needed to be appropriately adjusted because of two former cross-border municipalities that were incorporated into the province. The province also suggested that due cognisance be taken of the vastness and rural nature of the province to ensure a greater percentage of the equitable share, irrespective of the formula being used.

Mr Brown stated that all conditional grants were reorganised according to data collected from municipalities. He ensured the province that the entire equitable share formula was being revisited. He added that when looked at on a per capita basis, the Northern Cape was actually given more funds than other provinces.

Western Cape mandate
The Western Cape supported the Bill; however, they raised a few issues. Concerning the Public Transport Operation Grant, a high-level engagement should take place to include the National and Provincial Departments of Transport and National and Provincial Treasuries to find a workable solution for the successful implementation of the grant framework. The province thought that both the National and Provincial Treasuries and the National and Provincial Departments of Public Works should meet to discuss funding shortfalls regarding the Property Rates Grant. The Western Cape was concerned about the Hospital Revitalisation Programme, especially the funding pressure in 2010/11, which was not an additional amount. The province recommended that the Hospital Revitalisation Programme funding be smoothed over a four year period to alleviate funding shortfalls in 2010/11. 

Mr Brown stated that the Western Cape was right about the Public Transport Operation Grant. The NT had interacted with the Department of Transport (DoT) at previous engagements and informed them that a body was needed in each province to oversee the running of various transport systems. The NT hoped to incorporate this operation in the conditional grant framework. Mr Brown also informed the Committee that spending on the Property Rates Grant was very low across all provinces. The money was not the problem; it was the implementation of the programmes that the funds were used for.

Mr William Rampele, DPLG Senior Manager, addressed the issue of the Property Rates Grant. He stated that there were no mechanisms in place to deal with the current funding issues that were being experienced by those using the grant. He suggested that there be a mechanism in place to fast track the spending of grants.

The Chairperson stated that the DPLG had not told the Committee why the grants were underperforming. He stated that there needed to be a broader discussion on the matter, as departments had not resolved data issues as well as issues with municipalities.

Gauteng mandate
Gauteng supported the Bill; however, they proposed that the subsidisation of schools should include all needy schools without being determined by the location of the schools. Systems had to be put in place to ensure smooth transition regarding the shifting of certain areas from one province to another province. This problem had not yet been resolved. Gauteng stated that the Extended Public Works Programme (EPWP) had to create sustainable employment and skills and acquisition programmes had to be implemented. The province also thought that FIFA 2010 projects had to be extended to rural areas.

Mr Brown informed the Committee that something was being done about the subsidisation of schools. The Department of Education was also looking at the matter and checking whether R820 per child was a sufficient amount of money.

Mr Brown stated that the Demarcation Board had to see that they could not just change boundaries all the time, as the shifts from one province to another had serious implications for provinces and for service delivery.

Mr Brown stated that if some of the EPWP projects were targeted well they would generate sustainable employment. He also stated that there needed to be a general policy that rolled out infrastructure for sport in rural areas.

The Chairperson added that the Department of Sport (DoS) had not included municipalities in the planning of the 2010 FIFA World Cup. The municipalities and the DoS also had to engage with Integrated Development Planning (IDP) so that the IDP could reflect the sports facilities that were available. The Committee had plans to engage with the municipalities so that they could present their plans to Members regarding infrastructure. The Committee wanted a situation where the municipalities would engage with their communities to form a plan to determine which infrastructure they needed. The Chairperson noted that when all the departments were invited to these meetings, the departments’ would send their junior executives who did not know what was happening. The Committee felt that it was important that all sectors and departments coordinated properly. The Committee also felt that there was a need for a District Infrastructure Development Forum so that all investment in districts had to be processed first through the Forum. The Committee would pilot the Forum.

Mr D Botha (ANC- Limpopo) noted that the cross-border municipality matter was a very sensitive issue. The problem started to stabilise but then started again. He did not know how the Committee could handle the matter, as it was an issue that would not go away ant time soon. Every time the issue started to stabilise there would be a small group of people who would instigate problems and discontent amongst the community.

The Chairperson stated that the problem was that a small group of people would agitate the rest of the community if they were not happy. However, while the issue was a sensitive one, it was handled appropriately through the legal system. He warned that not everybody could be pleased. He also noted that the situation had to be handled appropriately and efficiently.

Ms D Robinson (DA- Western Cape) noted that it had been mentioned that junior executives were sometimes sent to important meetings in place of senior executives. She stated that departments had to look at how people were prepared before they attended meetings. She understood that senior executives could not sit in long meetings all the time; however, it was their responsibility to ensure that the people whom they sent to the meetings were well-prepared and briefed on what they had to do at meetings. There needed to be proper training.  

The Chairperson addressed the DPLG saying that the EPWPs function to create employment was great; however, the Committee was concerned that they were only targeting 45 municipalities. The Department of Public Works (DPW) had to discuss this with the National Treasury and the DPLG. There were 125 low-capacity municipalities in South Africa that should be targeted immediately. Part of the problem was that the DPW wanted to give money to provincial departments. He thought that the money should be given to municipalities, particularly low-capacity municipalities. The Committee’s- and the various departments’ efforts had to maximise participation in IDP processes. Each and every cent had to be prioritised in IDP targets.  

Mr E Sogoni (ANC- Gauteng) added that the IDP issue had been raised with the Director-General of the DPLG and with representatives from the NT. He wondered if it should be legislated that if there was no interaction between the IDP and the various areas, there would not be development in those areas. He wondered if there was legislation that could be amended to ensure that people interacted with the IDP. The lack of interaction between departments and the IDP was a longstanding issue.

Ms Makhubu stated that there was a clause in the Division of Revenue Bill that suggested that transfers from the MIG grant should go through the DPLG vote but the monitoring and reporting should be done through NT. The DPLG’s view was that this was contrary to the mandate of DPLG’s Budget Vote 29 and the duties of the National Transferring Officer in the case of the DPLG. The DPLG was referring specifically to Section 9(1) and (2) of the Bill. After an engagement with the NT, where they were joined by the Department of Water Affairs and Forestry (DWAF), it was found that DWAF had the same challenges with their sector load, particularly with reporting. There was a robust engagement and there were some challenges around the interpretation of the Bill. They agreed that the DPLG would compile and submit the changes that the departments proposed to the Bill. However, it was noted that if changes were made to the Bill, the National Assembly would have to be called back to discuss the amendments. In light of this information, the DPLG proposed that if there were any ambiguities in the Bill; clarities could be included in a framework of the Bill. The DPLG then incorporated input into the framework and sent it to the NT to comment on, so that when the departments approached the Committee, they would all be on the same page. The NT commented that there were no conflicts in the Framework, and said that they agreed that departments were not saying that municipalities could not submit reports directly to DPLG. This had been the primary concern. Because funds would be flowing through DPLG, reporting had to come through DPLG. However, they were not saying that reports could not be sent directly to DPLG. The DPLG was comfortable with ensuring that its sentiments were captured and clarified in the framework to ensure that reporting from municipalities also flowed through the DPLG.

Mr Khwattelani Bologo, DPLG Senior Manager, added that the DPLG understood that the Committee did not want to go through the process of bringing in the National Assembly and amending the Bill all over again. Therefore, the NT, DPLG and DWAF decided to clarify any ambiguities in a framework. The DPLG had already put forward a proposal on how the framework should look.

Mr Brown stated that one or two ambiguities would be fixed in the framework so that the Bill could be interpreted clearly. He added that before, there had been a rigorous process involved in crafting the Bill, where the different department’s contributed and gave their input. The Bill had then been sent through to the Cabinet Committee where it had been approved and submitted to Cabinet. When the Bill had been approved by the Cabinet Committee, Ministers had been given the chance to comment on it. Once approved by the Cabinet, it had become a government Bill. There seemed to be a breach of trust because Ministers who had approved the Bill later questioned the Bill after it had been approved. This was something that the government had to work on. The NT would be looking at what the legislation said and how they could reorganise the Division of Revenue Bill moving forward. Consultation on the Bill would have to start as early as June 2009. The Bill also had to be submitted to Cabinet on time so Ministers could be given ample time to engage and comment on it.  

Mr Brown stated that they would have to find a way of dealing with the reporting matter in the framework.  

Mr Sogoni stated that the agreement between the DPLG and the NT had to be followed through.

The Chairperson stated that department’s were always saying that there was integration between departments, yet departments always spoke individually and not collectively. The framework had to be agreed on by all that would be involved. All matters concerning the Bill had to be clarified together.

Mr Botha stated that departments had to approach the Committee with the final result.

The Chairperson added that the DPLG had to resolve issues that they had with other departments. The DPLG had to deal with unresolved issues and come back to the Committee with everything that all department’s had agreed on.   

Mr Brown commented that the departments had “found each other”, but that they were yet to agree on the framework.

The Chairperson asked the DPLG and the NT to alert the Committee when the framework was ready.

Briefing on the Western Cape Debt relief Bill
The Chairperson asked the NT to brief the Committee on the purpose of the Bill and the process for debt relief.

Mr Sishi stated that the purpose of the Bill was to authorise the over-expenditure of the former Cape Province regional structures and to facilitate the accounting process necessary to clear the overdrawn accounts. The clearing of accounts was necessary, as they reflected unauthorised expenditure against the province, even though it had not been incurred by the province.

Journal entries were to be effected by the Office of the Accountant-General from one set of government accounts (Exchequer) to another set of government accounts (Pay-Master General). The Provincial Accountant-General would similarly effect journal entries to reflect the clearing of the overdrafts. There would be no cash flow implications for either national or provincial government, no impact on general government debt and no interest implications.

Ms Robinson commented that this discussion between the Western Cape, Provincial and National Treasury had been going on for quite some time and it would be nice if the matter could be resolved before the new term. The Western Cape wished to deal with this matter immediately and efficiently.

Mr Botha proposed that the Committee deal with this matter as soon as possible and pass the Bill.

The Chairperson noted that this was a unanimous agreement. Ms Robinson would speak to this matter when it was to be passed.  

The meeting was adjourned.

 

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