ATC130313: Report of the Standing Committee on Appropriations on the Division of Revenue Bill [B2 – 2013] (National Assembly - Section 76), dated 13 March 2013

REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE DIVISION OF REVENUE BILL [B2 – 2013] (NATIONAL ASSEMBLY - SECTION 76), DATED 13 MARCH 2013

The Standing Committee on Appropriations (the Committee), having considered the Division of Revenue Bill [ B2—2013] (National Assembly – Section 76(1)), referred to it and classified by the JTM as a section 76(1), reports as follows:

1. INTRODUCTION

Section 214(1) of the Constitution, 1996 (the Constitution) requires that every year a Division of Revenue Act (DORA) determines the equitable division of nationally raised revenue among the three spheres of government. This is intended to foster transparency and ensure smooth intergovernmental relations. The Intergovernmental Fiscal Relations Act, No. 97 of 1997 prescribes the process for the determination of an equitable sharing and allocation of revenue raised nationally. Sections 9 and 10 (4) of this Act set out the consultation process to be followed with the Financial and Fiscal Commission (FFC), including the process of considering recommendations made with regard to the equitable division of nationally raised revenue.

In giving effect to section 73 of the Constitution, the Money Bills Amendment Procedures and Related Matters Act, No. 9 of 2009 was enacted. This Act empowers Parliament to amend the government budget and therefore play a greater role in ensuring that the most urgent needs of South Africans are addressed. It provides Parliament with necessary instruments to oversee government actions and monitor its fiscal discipline.

2. THE ALLOCATIONS OF THE DIVISION OF REVENUE BILL FOR THE 2013 MEDIUM TERM EXPENDITURE FRAMEWORK

The 2013 State-of-the-Nation-Address (SONA) by His Excellency President J G Zuma outlined South Africa ’s programme of action which serves as the basis for the 2013 Budget tabled by the Minister of Finance, Mr P Gordhan. The President emphasised that the 2013 Programme of Action will be implemented differently as the activities of departments must be aligned with the National Development Plan (NDP).

The NDP outlines the vision for the country for the next 20 years and contains proposals for tackling the problems of poverty, inequality and unemployment. It is the roadmap by which the country seeks to build a more equal society. The plan recognises emerging policy imperatives which have implications for planning and budgeting such as the rapid pace of urbanisation, the need for the economy to absorb the increasing number of the young unemployed and the imperative to improve the quality of education and expanding training opportunities.

The NDP will shape resource allocation for the next two decades but will eventually inform the annual budgets. In the short term, the National Development Plan’s focus areas are improving state capacity through the strengthening of performance accountability of heads of departments and line departments, expanding public employment programmes, accelerating land reform, establishing graduate recruitment schemes for the public service and local government and implementing employment incentives.

Interventions for improvements in outcomes of the education sector include extending the early childhood development programmes, introducing school inspectors and addressing the deployment of excess teachers. In the long term, the integration of the National Development Plan into government’s strategic and operational plans will improve coordination across government’s policy priorities and budgets.

The Minister of Finance tabled the 2013 National Budget together with the Division of Revenue Bill [ B2-2013] on 27 February 2013. The Constitution sets out specific criteria for the sharing of nationally raised revenue between national, provincial and local spheres of government. The Division of Revenue Bill classifies schedules from Schedule 1 to 7 in order to divide revenue between the three spheres of government. Table 1 below provides the equitable division of nationally raised revenue among these three spheres of government.

Table 1: Equitable Division of Nationally Raised Revenue among the National, Provincial and Local Spheres of Government

Spheres of Government	Column A	Column B
	Allocation 2013/14 (R'000)	Forward Estimates
		2014/2015 (R'000)	2015/16 (R'000)
National	676 920 412	733 566 388	791 822 019
Provincial	337 572 412	359 924 199	383 697 159
Local	40 581 787	44 490 145	50 207 698
TOTAL	1 055 074 611	1 137 980 732	1 225 726 876

Source: National Treasury, 2013

2.1 Main Budget Allocations

The main budget (revised estimates) has increased from R966.967 billion for the 2012/13 financial year to R1.055 trillion for the 2013/14 financial year. This marks an increase of R88.108 billion or 9.1 per cent from the 2012/13 financial year. The main budget framework provides for average annual growth of 8.1 per cent in the main budget allocations for the three spheres of government over the MTEF. For the 2013/14 financial year, national government is allocated 47.6 per cent of available funds after debt costs and the contingency reserve have been provided for, provincial government is allocated 43.5 per cent of available funds and local government is allocated 8.9 per cent of available funds. The main budget for the 2013 Medium Term Expenditure Framework (MTEF) will remain within the bounds set out in the 2012 budget.

2.2 National Share of the Nationally Raised Revenue

National Government is allocated R676.920 billion of the nationally raised revenue in the 2013/14 financial year. National Government’s share includes conditional grants to provinces and local government, general fuel levy sharing with metropolitan cities, debt-service costs and the contingency reserve. The main budget framework provides for growth in allocations for National Government from R676.920 billion in 2013/14 to R791.822 billion in 2015/16.

Government is committed to job creation and improvements in the labour market. The 2013 budget framework provides for growth in allocations to national departments for employment programmes and labour services from a revised estimate of R11.332 billion in 2012/13 to R15.497 billion in 2015/16. The Expanded Public Works Programme aims to create 684 783 full time job equivalents in 2013/14.

Expenditure on education, sport and culture for national departments will grow at an average annual rate of 12.1 per cent over the MTEF period, from a revised estimate of R27.428 billion in 2012/13 to R38.616 billion in 2015/16. Focus areas in the MTEF for the sector include improving literacy and numeracy, reducing school infrastructure backlogs and implementation of the new sports plan. An amount of R7.2 billion has been reprioritised from the School Infrastructure Backlogs Grant to fund the establishment of new universities in the Mpumalanga and Northern Cape provinces , the Community Library Services Conditional Grant and the Education Infrastructure Grant .

In the 2013 Budget Review it is noted that there are many areas within the broad public sector wherein there exist severe capacity constraints that prevent the effective delivery of socio-economic infrastructure. Many infrastructure projects are characterised by poor planning, lack of project management capacity and inadequate oversight. However, the expenditure on infrastructure through state owned entities, provincial, local government and Public Private Partnerships has been rising over the years. Allocations to public infrastructure investment amount to R827.078 billion over the MTEF.

2.3 Provincial Share of the Nationally Raised Revenue

The provincial departments are allocated R337.572 billion or 32 per cent of the available funds excluding conditional grants. The provincial equitable share allocation increases by R24.557 billion or 7.8 per cent from a revised estimate of R313.016 billion in 2012/13 to R337.572 billion in 2013/14. Over the MTEF the provincial equitable share increases by over R40 billion from R337.582 billion in the 2013/14 financial year to R383.697 billion in the 2015/16 financial year.

The provincial equitable share allocations include R2 billion in 2013/14, R2.2 billion in 2014/15 and R2.3 billion in 2015/16 which were previously part of the Devolution of Property Rate Funds Grant. This grant is being phased into the provincial equitable share in the 2013 MTEF. The funds emanating from the grant will not be subject to stipulations contained in the provincial equitable share formula. National Treasury reported that an assessment of the grant’s performance in 2012 confirmed that sufficient progress has been made and provinces will be in a position in 2013/14 to take full responsibility for property rates with respect to property owned and deemed to be owned by provincial departments.

For the 2013 MTEF, the provincial equitable share formula has been updated with data from the 2011 Census, whilst the impact of the updates on the provincial equitable share is to be phased in over three years (2013/14 to 2015/16).

Table 2: Determination of each province’s equitable share of the provincial equitable share of nationally raised revenue

Province	Colum A	Column B
	Allocations	Forward Estimates
	2013/14 (R’000)	2014/15 (R’000)	2015/16 (R’000)
Eastern Cape	50 164 506	52 337 533	54 611 258
Free State	20 000 325	20 905 461	21 897 266
Gauteng	61 374 917	67 431 166	74 049 582
KwaZulu-Natal	73 509 972	77 812 867	82 110 075
Limpopo	41 361 830	43 264 039	45 268 523
Mpumalanga	27 210 543	29 079 599	31 092 725
Northern Cape	9 021 508	9 620 556	10 264 595
North West	22 754 264	24 419 406	26 216 949
Western Cape	32 174 547	35 053 572	38 186 186
Total	337 572 412	359 924 199	383 697 159

Source: National Treasury, 2013

Table 2 (above) shows the horizontal allocation of the provincial equitable share across all nine provinces. As shown in Table 2, for the 2013/14 financial year, KwaZulu-Natal Province received the highest share of R73.509 billion or
21.8 per cent followed by the Gauteng Province with R61.374 billion or 18.2 per cent, the Eastern Cape Province with R50.164 billion or 14.9 per cent and the Limpopo Province with R41.361 billion or 12.3 per cent. Provinces that received the smallest share include the Northern Cape Province with R9.021 billion or 2.7 per cent, the Free State Province with R20 billion or 5.9 per cent and the North West Province with R22.754 billion or 6.7 per cent.

2.4 Local Share of the Nationally Raised Revenue

Municipalities were allocated R40.582 billion or 3.8 per cent of the nationally raised revenue in the 2013/14 financial year excluding conditional grants and the sharing of the general fuel levy. The local government equitable share increased by
R3.2 billion or 8.6 per cent compared to a revised estimate of R37.373 billion in the 2012/13 financial year. Over the MTEF the local government equitable share increases by R9.626 billion from R40.582 billion in the 2013/14 financial year to R50.208 billion in the 2015/16 financial year. For the 2013 MTEF, the local government equitable share formula has been updated with data from the 2011 Census and the formula has been revised. The impact of the updates and revisions on the local government equitable share is phased in over the next five years.

2.5 Main Changes to the 2013 Division of Revenue Bill

The 2013 Division of Revenue Bill introduced some changes when compared to the 2012 Division of Revenue. Revisions in the Bill mainly account for specific policy adjustments, as outlined hereunder:

• Provisions to cater for the reform and strengthening of various health conditional grants (infrastructure grants and National Health Insurance). The new grant created is the Health Facility Revitalisation Grant through the merger of three previous grants which become the new grant components ( Health Infrastructure Grant, Hospital Revitalisation Grant and Nursing Colleges and Schools Grant ). Any shift between a grant component (limited to the same province) needs to be gazetted (as per new section 7(3) of the Bill).

• Other new grants in the health sector are the N ational Health Grant and the 2014 African Nations Championship Health and Medical Services Grant . The National Health Grant (indirect grant) can be converted to a direct grant should a province have proven capacity (new section 20(1)(iv)).

• Provinces will be required to submit funding proposals for their infrastructure grant allocations in the education and health sectors two years in advance. A set of bidding prerequisites and criteria will be used to evaluate each province’s infrastructure bid proposals. (section 13 strengthened and section 26(4) added).

• Submission of monthly provincial report on provincial expenditure of supplementary provincial infrastructure grants in format prescribed by National Treasury (section 9(1)(d)).

• Human Settlements Development Grant and Public Transport Operations Grant to reallocate funds when human settlements and public transport functions are assigned to selected metros. The human settlements function may be assigned to specific metropolitan municipalities (subject to obtaining level 3 accreditation) beginning in 1 July 2013 (additional clauses to section 16). The public transport contracting and regulatory function may be assigned to specific metropolitan municipalities (additional clauses to section 16).

• Municipalities receiving Urban Settlements Development Grant to report against measures defined in their Service Delivery and Budget Implementation Plan (section 11 strengthened).

• Existing infrastructure grants may (subject to approval) be used by provinces and municipalities with the recovery and rehabilitation of infrastructure damaged by disasters (section 19(4) added).

• Provision has been made to enable National Transferring Officers to still enforce conditions in previous Division of Revenue Act and conditional grant frameworks until the new Act is promulgated (section 27(1) is for 2013/14 and section 27(3) is for 2014/15 onwards).

• Framework for providing exemptions on any condition in Act and/or conditional grant frameworks. Exemptions subject to: cannot be implemented in practice, impede achievement of any object of this Act, or undermines financial viability of affected national or provincial department or municipality (section 36).

• Provisions made to improve linkages between sections. Suspending payment schedule when a transfer is withheld (section 17(2)). National Treasury to determine approach for payment schedules with respect to indirect grants (section 22(3)(d)).

The Rural Households Infrastructure Grant (RHIG) which was previously a schedule 7 grant (allocation-in-kind) has been changed into a schedule 5(b) grant (direct grant).

3. HEARINGS ON THE 2013 DIVISION OF REVENUE

National Treasury briefed the Committee on the 2013 Division of Revenue Bill. Other stakeholders invited to comment on the 2013 DORA Bill were the Financial and Fiscal Commission and the South African Local Government Association.

National Treasury emphasised the need to prioritise the attainment of efficiencies in resource allocation to strengthen service delivery. The fiscal framework shows that consolidated government expenditure was R1.15 trillion compared to consolidated government revenues of R985 billion. National Treasury expects the deficit to decline and narrow to 3.1 per cent of Gross Domestic Product (GDP) by 2015/16 as the economy improves and government expenditure moderates. National Treasury envisages that expenditure reviews will increase efficiencies and eliminate waste.

The 2011 Census outcomes showed the complexities of the challenges facing the country. The population size has increased by 16 per cent from 2001 to 2011. There are marked differences in population growth across provinces and regions. Furthermore, the number of households without access to basic services remains high at just over 4 million. National Treasury stated that interventions contained in the 2013 Division of Revenue Bill that sought to improve the delivery of basic services and infrastructure include the introduction of the new local government equitable share formula that promotes accountability and measures to improve the effectiveness of infrastructure planning.

The Committee was concerned at the functionality and alignment of the roles of other state agencies in relation to that of the planned Chief Procurement Office (CPO). The Treasury pointed out that significant progress has been made in the process of setting up the CPO and that the new agency will make use of expertise and functionalities of other agencies such as the South African Revenue Services (SARS). For example, SARS is currently auditing 300 business entities and scrutinising over 700 entities.

The Financial and Fiscal Commission (FFC) in its submission welcomed the 2013 Division of Revenue Bill and was in general agreement with the main budget framework. The Commission stated that it supports the introduction of the new local government equitable share formula and reforms in conditional grant frameworks. In particular, the FFC supports the consolidation of conditional grants in a manner that allows flexibility as per the new Health Facility Revitalisation Grant . There was a need to increase the level of capacity support in poorer municipalities as these are set to benefit from the revised local government equitable share through rising allocations.

With regards to grant performance, the Commission was concerned at the poor expenditure performance of the National Health Insurance Grant and highlighted the need for urgent intervention to address the low spending. The Commission noted the conversion of the Rural Housing Infrastructure Grant (RHIG) into a direct transfer and pointed out the need for improvements in RHIG’s expenditure performance and reporting.

The South African Local Government Association (SALGA) in its submission welcomed the 2013 budget framework and viewed the budget framework as supportive of improved municipal service delivery following the outcomes of the 2011 Census. SALGA outlined some of its key interventions with regard to support to municipalities and these included the signing of pledges by municipalities to improve audit outcomes, the development of guidelines for credit controls and the facilitation of finance forums in most provinces.

With regards to funding for local government, SALGA welcomed the new local government equitable share formula including the formula’s provision for more frequent updating of data. SALGA noted the additional transfers of R7.7 billion to municipalities for expansion of basic services and infrastructure development. SALGA’s main concerns were the need to update estimates of basic services for the 2014 budget, minimal growth in the Municipal Infrastructure Grant over the MTEF and the need for an improved strategy in driving infrastructure delivery in municipalities.

The Committee was concerned about the feasibility of successfully phasing in funding adjustments emanating from the outcomes of the Census 2011 given existing infrastructure funding plans and salary cost structures for the provincial and local governments. Furthermore, the Committee pointed to the possibility that provinces that have had significant challenges in infrastructure planning in the past may be unfairly disadvantaged by the new infrastructure bidding requirements.

National Treasury stated that budgets will be thoroughly assessed before any significant resource adjustments are undertaken. Furthermore, capacity improvement initiatives such the Infrastructure Delivery Improvement Programme will be enhanced so as ensure that infrastructure bids meet prerequisites. The infrastructure reforms are aimed at promoting good infrastructure delivery management systems and complement existing capacity support.

The Committee emphasised the need to align the aims and objectives of the various conditional grants. For example, there were concerns at the alignment of the Neighborhood Development Partnership Grant with the programmes in Rural Development and Land Reform; and other human settlements development programmes. National Treasury indicated that the Neighborhood Development Partnership Grant is being refocused in line with the NDP and will focus on community infrastructure through partnerships aimed at dealing with the complexities posed by urbanization.

4. INTERACTIONS WITH NATIONAL DEPARTMENTS ON THE 2013 DIVISION OF REVENUE BILL

4.1 Department of Water Affairs

The Department of Water Affairs was invited to comment on its level of preparedness to implement the newly created conditional grant, Municipal Water Infrastructure Grant. Other stakeholders invited to comment on the municipal water infrastructure grant were the South African Local Government Association, National Treasury and Co-operative Governance and Traditional Affairs.

The purpose of the municipal water infrastructure is to facilitate the planning, acceleration and implementation of various projects that will ensure water supply to communities identified as not receiving a basic water supply service. For the 2013 MTEF the grant is allocated R603 million in 2013/14, R1.059 billion in 2014/15 and R2.672 billion in 2015/16.

The Department of Water Affairs in its submission outlined the aims and objectives of the Interim/Intermediate Water Supply Programme (IIWSP) for which the municipal water infrastructure grant is a funding component. The aim of the programme is to provide short term solutions and will initially focus on the 24 District Municipalities (DMs) with the highest backlogs. The Department stated that the District Municipalities were committed to the objectives of the grant though they had general concerns relating to planning and delivery capacity.

The framework setting out responsibilities, outputs and conditions for the municipal water infrastructure grant has been finalised and implementation plans developed. The Department stated that funds will only be transferred for work undertaken and that projects must form part of an overall strategy by the relevant Water Services Authority on eradicating water supply backlogs in their areas. The Department has obtained commitment from Water Boards to assist in the rollout of the programme.

The initial MTEF budget allocations for MWIG are as per the water supply backlog needs assessment in each District Municipality . The largest allocations are for KwaZulu-Natal at 36.3 per cent, Limpopo at 19.4 per cent and Eastern Cape at 18.7 per cent. The department envisages that implementation of projects should begin by 1 July 2013.

The Department identified a number of risks facing the smooth implementation of projects and these include the MWIG grant being a schedule 5 grant (specific purpose allocation) instead of a schedule 6 grant (allocation in kind), non-adherence to grant conditions by Water Services Authorities, limited capacity in Water Services Authorities, projects not maintained after completion and possible under-expenditure of grant.

With regards to planning and alignment, the Committee was concerned at the linkages between the provision of sanitation services and the objectives of the new grant. The Committee raised concerns with level of alignment between the MWIG and other water infrastructure grants such as the Regional Bulk Infrastructure Grant. The Committee pointed out the need for long term planning in ensuring the supply of water. The Committee commented that planning and implementation should be holistic and not reactive by focusing solely on areas where service delivery grievances were more pronounced.

The Department stated that the MWIG was part of the National Water Resource Strategy which requires funding exceeding R600 billion in the next 10 years for investment in the water sector. The MWIG was not geared for sanitation but water and sanitation were focus areas for the Presidential Infrastructure Coordinating Council’s Strategic Infrastructure Programme 18: Water and Sanitation Infrastructure.

The State defines the minimum level of acceptable access to water as access to water within 200m from the yard of a household. There has been steady progress in improving access to water with a 13 percentage point reduction in households with no access to water between 2001 and 2011. The results of the 2011 Census show that rural municipalities have the largest backlogs with 41 percent of households having no access to water whilst only 5 per cent of households in Metros had no access to water.

The target for attaining access to water for all households seems unlikely to be attained in 2014. The results of the 2011 Census suggest that only 89 per cent of households will have access to water by 2014. National Treasury stated that R101.3 billion in local government infrastructure transfers have been allocated between 2001 and 2011. For the 2013/14 financial year, just over R16 billion funding has been made available for transfers for water and sanitation infrastructure. In particular, the R4.33 billion MTEF allocation for MWIG is a significant intervention to accelerate the eradication of backlogs in rural areas.

National Treasury indicated that the implementation of MWIG as a direct grant ensures that municipalities will operate and maintain completed water infrastructure projects. Furthermore, National Treasury stated that the sustainability of completed water infrastructure projects was a key concern given that many water projects have been built but have since ceased to function. Municipal infrastructure grants will be reviewed and realigned in the 2013 MTEF. The review will be collaborative (involving national departments, SALGA and the Financial Fiscal Commission) and will include extensive consultation with municipalities.

The Committee was concerned with the level of participation of unemployed young persons in communities where water infrastructure projects were implemented. National Treasury indicated that skills transfer formed a critical part of infrastructure grant frameworks.

The South African Local Government Association in its submission raised concerns regarding the proliferation grants and alignment of priorities of the three spheres of government. SALGA did not support the introduction of the Municipal Water Infrastructure Grant . SALGA commented that the introduction of the Municipal Water Infrastructure Grant reverses existing policy emphasis on consolidating conditional grants to facilitate integrated infrastructure delivery and in addition may lead to national priorities superseding local priorities.

SALGA outlined some of the challenges that may impede the implementation of the grant and these included the lack of a coherent policy imperative that underpins the creation of MWIG, the establishment of the grant not being underpinned by the need to prioritise the use of government capacity to accelerate infrastructure delivery, grant being limited to DMs only thus provinces and municipal areas where local municipalities are Water Service Authorities (WSA) may not benefit, limited alignment with sanitation services and the fact that the current funding requirements at municipal level relates to refurbishment and replacement of ageing infrastructure. SALGA proposed that closer working relations be forged with DWA in the implementation of the grant in order to address identified challenges and the need to develop a coordinated policy response to improving local government infrastructure delivery.

The Committee pointed out the need to ensure that all role players involved in the grant’s implementation understand the aims, objectives and conditions underpinning the MWIG. In particular, SALGA should play a central supporting role in the implementation of the grant given the expert knowledge that SALGA possess on conditions prevailing in the local government sphere. The Committee highlighted the need to elevate the role of local municipalities given that Water Service Authorities may in some instances not possess the necessary capacity to undertake planned projects.

One of the major concerns raised by the Committee was the use of consultants in the implementation of water infrastructure projects and their associated cost burden on infrastructure budgets. In particular, the Department projected that 10 per cent of the R4.3 billion MTEF allocation earmarked for MWIG was projected to be set aside for project management costs. The Committee pointed out the need to eliminate the cost burden that implementing agents accrue to government infrastructure budgets and to prioritise the use of internal government capacity in the roll out of projects.

While the Committee supports the aims and objectives of the MWIG, it views the participation of SALGA and local municipalities as critical to the attainment of the objectives of the grant.

4.2 Department of Health

The Department of Health was invited to comment on its level of preparedness to implement the newly created conditional grants, the Health Facility Revitilisation Grant and the National Health Grant; and the new framework for the National Health Insurance Grant.

The Department indicated that in the past planning was not informed by community needs and therefore resource allocations and the delivery of health infrastructure were not having the desired impact on the health profiles of communities. In particular, the Department had identified a number of inequities in the provision of health services whereby health facilities were found to be concentrated in certain areas whereas other areas had serious deficiencies in this regard. The Department pointed out that its primary concern was on improving the levels of access by all to quality healthcare.

In the medium term, the Department is to employ an integrated approach whereby infrastructure delivery and conditional grant allocations are aligned with the needs within the various district areas. This was part of the rationale that informed the merging of the 3 health grants, namely, Health Infrastructure Grant, Hospital Revitalisation Grant and Nursing Colleges and Schools Grant into the Health Facility Revitalisation Grant (HFRG); these will now serve as components of the HFRG. Provinces will be allowed to shift money from one component to another thus creating flexibility through the redirection of funds from poor performing projects to well performing projects within a province.

The National Health Grant is a new indirect grant for the health sector. The grant has two components, Health Facility Revitilisation component to support infrastructure projects and the National Health Insurance (NHI) component to support the national health insurance scheme pilot sites. The infrastructure component will be used to accelerate construction, maintenance, upgrading and rehabilitation of new and existing health infrastructure while the NHI component will be used to contract general practitioners from the private sector for national health insurance sites, strengthen patient information systems in selected central hospitals and develop and pilot alternative hospital reimbursement tools.

The Department has developed a specialised planning tool that provides data per district and contains detailed information such as the location and number of health infrastructure facilities, number of health specialists in each district and the spatial mapping of health facilities. The data then serves as base information for the Department’s planning framework which focuses on a number of areas which include accessibility of health facilities within each district, the disease burden in each district and the workload-staffing ratio within each of the country’s 52 districts. The Department then makes this spatial information available to provinces to assist them with the alignment of plans with needs and enable grant allocations to be directed to areas where resources are most needed.

The Department indicated that a health facilities audit has been finalised and the audit results showed that the maintenance of health facilities and equipment was not prioritised. Specifically, 30 per cent of the existing R300 billion health infrastructure was in a state of disrepair. The Department has established facilities improvement teams in each province in order to address this and to ensure that the HFRG also addresses operation and maintenance needs of facilities and equipment.

The Department stated that some core health services (e.g. internship programme, schools mobile units) are financed through donor funding whilst such funding should be facilitative and own funding be utilised for core services. While the allocation of mobile units was done by provinces, the allocation had to respond to the national department’s spatial planning frameworks. Furthermore, the national department is to monitor closely whether the provision of healthcare infrastructure is aligned with spatial data and macro planning frameworks.

The Committee expressed concerns at the possible under-utilisation of specific health facilities as spatial planning reforms are rolled out. The Department indicated that it has identified risk areas and has developed applicable strategies. For example, the Eastern Cape had the highest number of health facilities yet overall access was still limited. The Department reported that the new planning framework requires at least one General Practitioner and seven medical specialists per district area.

The Committee was concerned at the expenditure performance of some of the health conditional grants in 2012/13. In addition, the Committee raised concerns on delays in refurbishments of some hospitals, the cost implications of such delays and appointment of key personnel. The Department outlined the following reasons for under-expenditure in conditional grants:

· Delays in the approval process of provincial roll-overs;

· Provincial departments preferring to utilise equitable share funds in place of conditional grant funds when implementing infrastructure projects;

· Non-payment of invoices relating to infrastructure spending in the Free State Province as a result of a directive from the Free State Provincial Treasury to halt grant payments due to cash flow problems. The Department stated that it had requested intervention in this matter.

The Committee expressed serious concern regarding the non-payment of invoices in the Free State Province and the late approval of rollovers for provinces. The Committee viewed deviations from conditional grant payment schedules in a serious light and indicated that this had far reaching implications including the non- attainment of service delivery targets of the grants and the non-payment of suppliers within the required 30 days. National Treasury stated that the utilisation of conditional grant funding for purposes other than the grant objectives was not permitted and that Provincial Treasuries were responsible for the provincial rollover process.

While the Committee welcomed the new approach to planning which employs the use of spatial data instruments, the Committee emphasised the need to involve National Treasury in the formulation of spatial plans so as to align resource allocation with credible business plans. The Department indicated that it had a functional working relationship with National Treasury but relations between Provincial Treasuries and Provincial Health Departments need to improve.

4.3 Department of Human Settlements

The Department of Human Settlements (the Department) was invited to comment on its level of preparedness to implement the Department’s conditional grant allocations for the 2013 MTEF. Other stakeholders invited to comment on the human settlements conditional grant allocations were the Financial and Fiscal Commission, provinces and metropolitan municipalities.

The budget provides for allocations for the Human Settlements Development Gran t (HSDG) of R16.984 billion in 2013/14, R17.918 billion in 2014/15 and R19.667 billion in the 2015/16 financial year. The purpose of the HSDG is to provide funding for the creation of sustainable human settlements. The human settlements function will be assigned to six metropolitan municipalities subject to the said municipalities obtaining level 3 accreditation. The funds will still be reflected in the allocations of provinces pending the assignment of function to the metros. The Department outlined a number of challenges in implementation of the HSDG and these include lack of bulk and link infrastructure, lack of technical capacity and overall poor planning. Interventions aimed at addressing some of the challenges included the undertaking mid-term reviews with provinces and municipalities on performance, spending and planning for 2013/14.

The budget provides for allocations for the Urban Settlements Development Grant (USDG) of R9.077 billion in 2013/14, R10.334 billion in 2014/15 and R10.670 billion in the 2015/16 financial year. The USDG is aimed at assisting metropolitan municipalities improve urban land production focusing on poor households so as to improve spatial integration and densities. The grant supplements capital revenues of metropolitan municipalities in order to support human settlements development programmes. The Department has prioritised a number of interventions aimed at accelerating implementation of the grant and these include addressing capacity constraints through the Cities Support Programme and strengthening monitoring and evaluation mechanisms.

The Rural Households Infrastructure Grant (RHIG) is aimed at providing capital funding for the reduction of rural water and sanitation backlogs and to target existing households where bulk dependant services are not available. The budget allocation for RHIG amounts to R106.7 million in 2013/14, R113.1 million in 2014/15 and R118.3 million in 2015/16. This represents a significant decrease in funding given that the grant was allocated R480 million in the 2012/13 financial year. The grant has been reclassified as a specific purpose allocation to municipalities or Schedule 5B grant.

The Financial and Fiscal Commission (FFC) in its submission highlighted key challenges facing the successful implementation of the HSDG, the USDG and the RHIG. With regards to the HSDG, the FFC pointed to the lack of linkages between the grant and other infrastructure grants/programmes that contribute to the attainment of quality human settlements such as the Integrated National Electrification Programme and the Regional Bulk Infrastructure Grant. In addition, in some instances there had been delays with the transfer of funds from provinces to municipalities hampering municipal cash flows.

In respect of the USDG, the grant has shown consistent poor expenditure performance with significant under-expenditure experienced in the 2011/12 financial year and for 2012/13 only 45 per cent had been spent as at 31 January 2013. The Commission reported that RHIG has also shown consistent poor expenditure performance since its introduction in 2010/11. In addition, expenditure trends for RHIG show abnormally large fund expenditure in the last quarter of the financial year which suggests the existence of fiscal dumping.

The Commission indicated that its past research indicate that the majority of metropolitan municipalities do have capacity for level 2 accreditation although it was not certain of the readiness for the assignment of the full housing function (level 3). The Commission stated that performance of the USDG should improve once challenges in procurement and project management are addressed and monitoring of projects is strengthened. The Committee notes the assurance provided by metropolitan municipalities on their readiness to implement the USDG.

The Committee was seriously concerned with the poor expenditure and service delivery performance of the RHIG. In particular, the Committee had requested National Treasury and the Department of Human Settlements to jointly develop an integrated strategy that would ensure that expenditure and service delivery performance of the grant improves. The Committee could not get assurance from National Treasury and the Department of Human Settlements that the current rescheduling of RHIG as s specific purpose allocation to municipalities would improve the grant’s performance. In addition, the Committee highlighted that municipalities are assigned additional responsibilities through additional grant allocations without due regard to the need to thoroughly consult affected municipalities.

5. FINDINGS AND OBSERVATIONS

Having considered the 2013 Division of Revenue Bill and submissions made by various stakeholders, the Standing Committee on Appropriations makes the following findings and observations:

5.1 The Committee notes that planning is still underway in finalising water infrastructure projects under the Municipal Water Infrastructure Grant. In addition, the Committee was concerned at the readiness of grant’s projects to begin implementation by the beginning of the municipal financial year on 1 July 2013.

5.2 The Committee notes the imperative for involving all stakeholders in the implementation of water infrastructure projects. The Committee welcomes the readiness of the South African Local Government Association to forge closer working relations with the Department of Water Affairs in rolling out water infrastructure. In addition, the Committee is of the view that local municipalities should be given an explicit role in the rolling out of water infrastructure.

5.3 The Committee supports the aims and objectives of the new Municipal Water Infrastructure Grant as a policy instrument in accelerating access to water in the 24 impoverished District Municipalities. The Committee was concerned at the costs that accrue to implementing agents and how these can be minimized.

5.4 The Committee notes that the newly created Municipal Water Infrastructure Grant does not make provision for the sanitation function.

5.5 The Committee notes with concern the lack of linkages between the Human Settlements Development Grant and other infrastructure grants/programmes that contribute to the attainment of quality human settlements such as the Integrated National Electrification Programme Grant and the Regional Bulk Infrastructure Grant.

5.6 The Committee notes the centrality of Water Service Authorities in the implementation of the Municipal Water Infrastructure Grant but was however concerned at the existing capacity and readiness of Water Service Authorities to implement the Municipal Water Infrastructure Grant.

5.7 The National Department of Health was experiencing challenges in ensuring that provinces meet conditions stipulated in conditional grant frameworks. Provinces preferred to utilise their equitable share portions in implementing infrastructure projects so as to evade adhering to conditions in the grant frameworks.

5.8 The National Department of Health has experienced delays in the expenditure of infrastructure budgets in provinces due to delays in the roll over process.

5.9 The National Department of Health stated that the Free State Provincial Treasury declared a moratorium on the payments for health infrastructure projects which contributed to under expenditure on the conditional grant.

5.10 The Committee welcomes the use of spatial mapping data informing planning framework of the Department of Health. The Committee supports the incorporation of spatial data in conditional grant business plans and resource allocations.

5.11 The Committee supports the merger of the three health grants (Health Infrastructure Grant, Hospital Revitalisation Grant and Nursing Colleges and Schools Grant) to form the new Health Facility Revitalisation Grant. The Committee envisages that the flexibility afforded in this regard will lead to improved expenditure performance and service delivery performance.

5.12 The Committee welcomes the new planning requirements for education and health infrastructure funds. The Committee’s main concern is that provinces where there are existing capacity challenges should not be unfairly disadvantaged in future allocations in the education and health sectors.

5.13 The Committee remains seriously concerned at the persistent poor expenditure and service delivery performance of the Rural Household Infrastructure Grant (RHIG). The Committee was concerned that the rescheduling of the RHIG from a schedule 6B to a schedule 5B may not result in improvement in the service delivery of the conditional grant performance.

6. RECOMMENDATIONS

The Standing Committee on Appropriations recommends as follows:

6.1 The Department of Water Affairs to put in place measures to ensure the participation of the South African Local Government Association, Financial and Fiscal Commission and all affected district and local municipalities in the planning and implementation of the Municipal Water Infrastructure Grant.

6.2 National Treasury to put in place measures to ensure that roll-overs are finalised and approved by the first quarter of the financial year.

6.3 National Treasury to submit a report on strategies and measures to ensure that provinces are able to meet the new infrastructure planning criteria requiring provinces to submit their plans for education and health infrastructure funds two years in advance within 90 days after the adoption of the report by the House.

6.4 National Treasury, in consultation with the Department of Human Settlements and the South African Local Government Association, to submit a report on how the rescheduling of the Rural Household Infrastructure Grant from an allocation-in-kind to municipalities (schedule 6B) to a specific purpose conditional grant to municipalities (schedule 5B) gives effect to improvements in the expenditure and service delivery performance of the Rural Household Infrastructure Grant to the National Assembly within 60 days after the adoption of this report by the House.

6.5 National Treasury to submit quarterly expenditure and non-financial performance reports, in accordance with the conditions in the 2013 Division of Revenue Bill on the Rural Households Infrastructure Grant to the Committee.

7 CONCLUSION

The Standing Committee on Appropriations having considered the Division of Revenue Bill [ B2—2013] (National Assembly – Section 76(1)), referred to it and classified by the JTM as a section 76(1), reports that it has agreed to the Bill without amendments.

Report to be considered.