ATC131108: Report of the Select Committee on Appropriations on the Division of Revenue Amendment Bill [B38 - 2013], dated 08 November 2013

REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE DIVISION OF REVENUE AMENDMENT BILL [B38 - 2013], DATED 08 NOVEMBER 2013

Having considered the Division of Revenue Amendment Bill [B38 – 2013], the Select Committee on Appropriations reports as follows:

1.         Introduction

In enforcing section 77 of the Constitution, the Money Bills Amendment Procedures and Related Matters Act, No. 9 of 2009 (the Money Bills Act) was enacted. This 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. The Money Bills Act provides Parliament with the necessary instruments to oversee government actions and monitor fiscal discipline.

While the Money Bills Act empowers Parliament to amend money bills, it also provides guidelines and factors to be taken into consideration by Parliament and its committees on appropriations when proposing amendments to the money bills.

Section 6(1)(a-f) of the Money Bills Act provides that, at least three months prior to the introduction of the national budget, the Minister of Finance must submit to Parliament a Medium Term Budget Policy Statement that must include the following:

a)     A revised fiscal framework for the present financial year and the proposed fiscal framework for the next three years;

b)    An explanation of the macro-economic and fiscal policy position, the macro-economic projections and the assumptions underpinning the fiscal framework;

c)     The spending priorities of national government for the next three years;

d)    The proposed division of revenue between the spheres of government and arms of government within a sphere for the next three years;

e)     The proposed substantial adjustments to conditional grant allocations to provinces and local government, if any; and

f)     A review of actual spending by national departments and provincial departments between 01 April and 30 September of the current fiscal year.

The Division of Revenue Amendment Bill (the Bill) was tabled in Parliament on 23 October 2013 by the Minister of Finance, as required by section 12(4) of the Money Bills Act, during the tabling of the Medium Term Budget Policy Statement (MTBPS).

The Bill addresses the following matters:

• Additional unconditional and conditional allocations to provinces and municipalities;
• Allocation of unallocated conditional grant allocations to provinces and municipalities;
• Roll-overs of conditional allocations to provinces and municipalities not transferred by national departments during the 2012/13 financial year;
• Corrections of conditional allocations that were not correctly reflected in Schedules;
• Rescheduling of allocations between direct and indirect allocations; and
• Other related matters

2. Changes in the 2013 Division of Revenue Amendment Bill

An adjustments budget provides for unforeseen and unavoidable expenditure; appropriation of monies already announced during the tabling of the annual budget (but not allocated at that stage); the shifting of funds between and within votes where a function is transferred; the utilization of savings; and the roll-over of unspent funds from the preceding financial year.  The amendments to the 2013 Division of Revenue Act, as they impact on provinces and municipalities, are discussed below.

The adjustments budget makes provision for an additional R5.484 billion in allocations for the 2013/14 financial year, comprised as follows:

• Roll-overs = R894.094 million;
• Unforeseeable and unavoidable expenditure = R558.938 million;
• Salary adjustments = R2.292 billion;
• Self-financing expenditure = R507.724 million;
• Announced by the Minister of Finance in the 2013 Budget Speech = R488.644 million; and
• State debt costs = R743.051 million.

A contingency reserve of R4 billion was set aside in the main budget, as well as unallocated amount of R30 million. Unspent funds in the amount of R3.032 billion had been declared, a repayment of R500 million will be made into the National Revenue Fund, and skills levies and expenditure by the sector education and training authorities had projected to decrease by R103 million. Over and above this, budget spending projections also indicate a possible R3.5 billion in underspending.

When these reductions and additions are taken into account (excluding underspending not yet realized), the revised total level of spending will be R1 053.393 billion, representing a decrease of R1.681 billion in aggregate from the budgeted spending estimate of R1 055.075 billion tabled in February 2013.

2.1        Changes to allocations between the three spheres

The allocations among the three spheres of government were reduced by R1.68 billion due to the reduction of budget at national government level. While the national budget declined by R3 billion, the provincial budget increased by R1.36 billion and the local government budget increased slightly by R13.22 million, which is indicated in Table 1 below.

Table 1:            Allocations between the three spheres of government

Sphere of Government (R’000)	Main allocation	Adjustment	Adjusted appropriation
National	676 920 412	(3 058 886)	673 861 526
Provincial	337 572 412	1 364 405	338 936 817
Local	40 581 787	13 223	40 595 010
Total	1 055 074 611	(1 681 258)	1 053 393 353

Source: National Treasury (2013)

2.2        Changes to provincial allocations

The provincial equitable share has been adjusted upwards by R563.8 million to provide for higher than budgeted wage costs. The cost of wage increases in 2013/14 is higher than the costs provided for in the 2013 Budget as a result of higher than anticipated inflation. Additional funds (R690.8 million) will be added to the provincial equitable share to assist provinces with the cost of upgrading clerical positions. The upgrading of clerical positions in the health and education sectors, in particular, had significant cost implications. Funds will be allocated among provinces based on data for the number of clerks in each province. The Bill further adjusted the Further Education and Training (FET) Colleges Grant by R11.5 million for the higher than budgeted wage increases.

A roll-over of R109.3 million was approved on the provincial equitable share for funds allocated to the Devolution of Property Rate Funds Grant. These funds were allocated but not transferred to provinces in the 2012/13 financial year. The affected provinces are Western Cape, Mpumalanga and Free State, with the provinces receiving R44.5 million, R28.2 million and R36.6 million respectively. As this Grant has been phased-out and incorporated into the provincial equitable share over the 2013 Medium Term Expenditure Framework, these funds will be added to the equitable share transfer for each province. Roll-overs for two Department of Basic Education grants have been made as a result of funds committed to projects in the 2012/13 financial year. The Dinaledi Schools Grant will receive a roll-over of R4.0 million and the Technical Secondary Schools Recapitalisation Grant will receive a roll-over of R10.6 million.

A virement, from the vote of the National Department of Public Works, of R1 million has been added to the Expanded Public Works Programme Integrated Grant for Provinces for the Department of Economic Development in the Northern Cape. This provincial department should have received these funds in the 2012/13 financial year based on their past performance in creating employment, but a problem with the electronic payment system resulted in a delay in the transfer and funds were not transferred before the end of the financial year.

The provinces of Free State and Mpumalanga have been reimbursed by a sum of R424 000 for funeral costs incurred after the tragedy at Marikana. The reimbursements were a directive of the Inter-Ministerial Committee (IMC) appointed by the President.

Following the under-spending on the Health Facility Revitalisation component of the indirect National Health Grant, a sum of R200 million has been declared as savings in the Bill. Within the remaining grant funds, R167 million will be converted to a direct transfer grant, as part of their Health Facility Revitalisation Grant allocation, to the KwaZulu-Natal and Northern Cape provinces.

Since South Africa will host the 2014 African Nations Championship football tournament, a sum R6 million has been made available as an indirect grant to the provinces of Free State (R1.687 million), Limpopo (R1.313 million) and Western Cape (R3 million) for the indirect 2014 African Nations Championship Health and Medical Services Grant. These funds have been made available to support host provinces to provide emergency medical services for the football tournament.

There is a proposal for an adjustment to the Provincial Roads Maintenance Grant for the 2013/14 financial year. The new formula that was introduced from the 2013/14 financial year resulted in large changes in the allocations to provinces due to the different costs of maintaining road networks in various provinces. Given concerns that the new formula could result in some of the provinces no longer being able to fund all their planned expenditure for the 2013/14 financial year, the new formula will now be phased in over a three-year period commencing 2013/14. To do this, the 2013/14 allocations for the grant are revised to reduce the scale of both increases and decreases to allocations in 2013/14 financial year. This will be implemented taking into account the ability of provinces to spend the funds during this financial year.  The table below shows how provinces will be affected:

Table 2: Adjustments to Provincial Roads Maintenance Grant, 2013/14

R Thousand

Province	2013/14 Main Allocation	Adjustments	2013/14 Adjusted Allocation
Eastern Cape	1 102 836	189 554	1 292 390
Free State	1 130 462	(254 879)	875 583
Gauteng	433 048	222 200	655 248
KwaZulu-Natal	1 678 920	(157 007)	1 521 913
Limpopo	990 578	214 763	1 205 341
Mpumalanga	1 487 722	(16 644)	1 471 078
Northern Cape	659 484	(147 719)	511 765
North West	639 923	21 982	661 905
Western Cape	573 237	(72 250)	500 987
Total	8 696 210	-	8 696 210

Source: National Treasury (2013)

Table 2 above shows that four provinces (Eastern Cape, Gauteng, Limpopo and North West) whose allocations were reduced due to the new formula will now receive smaller decreases (therefore shown as increases in the table) while five provinces (Free State, KwaZulu-Natal, Mpumalanga, Northern Cape and Western Cape) that gained from the formula will now receive more moderate increases (therefore shown as decreases in the table).

Due to disasters that occurred in 2012 and early 2013, a total of R103 million has been allocated to selected provincial sector grants for repair of infrastructure in each sector. The funds will be allocated to the Comprehensive Agricultural Support Programme Grant (R4.3 million) for the provinces of Limpopo (R2.48 million), Mpumalanga (R303 000) and Western Cape (R1.52 million); to the Education Infrastructure Grant (R12.6 million) for the provinces of KwaZulu-Natal (R7.57 million), Limpopo (R163 000) and Mpumalanga (R4.87 million); to the Health Facility Revitalisation Grant (R274 000) for the provinces of KwaZulu-Natal (R62 000) and Mpumalanga (R212 000); to the Provincial Roads Maintenance Grant (R41.57 million) for the provinces of KwaZulu-Natal (R1.61 million), Limpopo (R4.46 million), Mpumalanga (R18.31 million) and Western Cape (R17.17 million); and to the Human Settlements Development Grant (R44.4 million) for the provinces of KwaZulu-Natal (R40.15 million), Limpopo (R1.36 million), Mpumalanga (R1.76 million) and Western Cape (R1.16 million).

2.3        Changes to local government allocations

Roll-overs of R2.4 million for the Municipal Infrastructure Grant and R11.3 million for the local government equitable share have been approved for the Bela-Bela Local Municipality in Limpopo. The funds were initially stopped by National Treasury to enforce compliance with Treasury norms and standards as set out in section 216 of the Constitution.

A roll-over of R58 million has been approved on the Regional Bulk Infrastructure Grant for projects in four municipalities (Chris Hani District Municipality: R7.115 million, Mogalakwena Local Municipality: R21.585 million, Sekhukhune District Municipality: R26 million and Madibeng Local Municipality: R3.3 million) where funds were committed but had not yet been paid at the end of the 2012/13 financial year.

An amount of R100.5 million as a roll-over has been approved on the Rural Households Infrastructure Grant. As the rollover is for funds allocated to the grant in 2012/13, it is a rollover of funds in the previous allocation-in-kind grant. The Rural Households Infrastructure Grant for the 2013/14 financial year will therefore have both direct transfers to municipalities and an in-kind allocation.

A virement of funds (R600 000) on the vote of the National Department of Public Works has been approved to add to the Expanded Public Works Programme Integrated Grant for Municipalities for the Naledi Local Municipality in the Free State. These funds should have been transferred in the 2012/13 financial year for past performance in creating employment, but a problem with the electronic payment transfer system resulted in a delay in the transfer and funds were not transferred before the end of the financial year.

An amount of R1.9 million will be added to the local government equitable share transfer to Bojanala District Municipality as reimbursement for coordinating and leading activities supporting families of the victims of the August 2012 Marikana tragedy.

The Municipal Disaster Recovery Grant, which aims to rehabilitate and reconstruct municipal infrastructure damage caused by disasters, received a R118.34 million allocation (there was no allocation in February 2013). This is an infrastructure grant that is administered by the Department of Cooperative Governance and Traditional Affairs, and the allocation was to fund a number of disasters that occurred in the Western Cape, Eastern Cape, Limpopo and KwaZulu-Natal provinces that resulted in significant damage to municipal infrastructure. Funds for the repair and replacement of damaged municipal infrastructure are allocated to affected municipalities, of which the following received allocations:

• Eastern Cape Municipalities: Six municipalities in the Eastern Cape received R111.4 million. These are the Nelson Mandela Bay Metropolitan Municipality (R72 million), Ndlambe Local Municipality (R15.4 million); Kouga Local Municipality (R4.5 million); Koukama Local Municipality (R8.4 million); Makana Local Municipality (R8.7 million); and Sundays River Valley Local Municipality (R2.4 million).

• Western Cape Municipalities: Two municipalities in the Western Cape received R6.68 million. These are the Langeberg Local Municipality (R104 000) and the Eden District Municipality (R6.58 million).

• Limpopo Municipality: Maruleng Local Municipality in the Limpopo Province received R264 000.

• KwaZulu-Natal Municipality : Umvoti Local Municipality in KwaZulu-Natal received R38 000.

3. Submissions by stakeholders on Division of Revenue Bill [B38-2013]

3.1        Financial and Fiscal Commission

The Committee invited the Financial and Fiscal Commission to make a submission on the 2013 Medium Term Budget Policy Statement in terms Section 214 (2) and Section 220 of the Constitution of the Republic of South Africa (Act 108 of 1996); and Section 9 of the Intergovernmental Fiscal Relations Act (Act 97 of 1997).

3.1.1     General comments

The Commission noted that the 2013 Division of Revenue was revised upwards by R1.7 billion, mainly due to the R1.3 billion injection to the provincial equitable share allocation for inflation-related salary adjustments and upgrades in the salary levels of public sector clerks. The 2014 MTEF would be characterised by moderate growth, with a projected real annual average growth of 1.02 percent. The Commission reported that government had adopted a two-pronged approach to deal with increased spending pressures, namely reducing the contingency reserve allocation and reprioritising funding away from under-performing items with specific focus on conditional grants.

3.1.2     Provincial government conditional grants

The Commission welcomed the proposed upward adjustment by R1 billion to provincial conditional grants. This represented an increase of 0.6 percent from the baseline projected in the 2013 budget.  However, the Commission expressed concern over the following proposed downward adjustment of allocations to under-performing grants:

·         R200 million from the Comprehensive Agricultural Support Programme Grant and the Land Care Grant;

·         R1.5 billion from the Education Infrastructure Grant and the School Infrastructure Backlogs Grant;

·         R46 million from the National Health Insurance Grant; and

·         R80 million from the Expanded Public Works Programme Incentive Grant.

The Commission was of the opinion that these reductions were carried out without proper assessment of the impact they had on the attainment of grant objectives and the goals of the National Development Plan; while at the same time not addressing the underlying causes of under-performance. The Commission noted that the under-spending on the National Health Insurance Grant had the potential to undermine the full implementation of the scheme. The reasons given for this under-spending had been a lack of planning and the unpreparedness of pilot projects to fully absorb allocated funds. In the Commission’s opinion, the reduction in the Expanded Public Works Programme Grant had the potential to undermine government’s objective to reduce unemployment to 14 percent in 2020 and 6 percent in 2030. The Commission reiterated its previous recommendations on the need to improve grant design.

The Commission found it especially concerning that under-spending on indirect grants was significantly higher relative to direct grants. The Commission indicated that there is a need for national sector departments to build capacity to adequately perform their oversight function and to improve sub-national capacity building initiatives.

The Commission welcomed the addition to the Human Settlements Development Grant (HSDG), which it has found to consistently show good spending performance. However, the Commission was concerned that the Eastern Cape and Limpopo continuously under-spent on their HSDG allocations, despite a growing backlog. The Commission was of the view that the national Department of Human Settlements needed to identify the underlying challenges in these two provinces and develop plans to assist them to improve performance. Furthermore, in anticipation of the housing function shifting to six metro municipalities by 2014, the Commission recommended that the Department of Human Settlements set aside additional resources to support and monitor these municipalities.

The Commission welcomed the additional funding to cover the costs of salaries in respect of Further Education and Training (FET) colleges. The Commission noted the shifting of the FET function from provinces to the Department of Higher Education and Training and reiterated its previous recommendation that the baseline funding requirement should be established before completion of the transfer.

The Commission noted inconsistencies in the performance of the Urban Settlements Development Grant (USDG) and indicated that the transferring department should investigate the reasons for this. The Commission further repeated its call for the need to align the USDG with other municipal infrastructure-related grants.

The Commission reported that the Rural Households Infrastructure Grant (RHIG) had continued to under-perform, with expenditure of only 60 percent of the adjusted budget in the 2012/13 financial year. The Commission maintained that changing this grant from a Schedule 6B (indirect) grant to a Schedule 5B (direct grant to municipalities), was unlikely to improve its performance. The Commission was of the view that, rather than moving the challenge from one sphere to another, government should investigate the real cause of under-performance - particularly given the capacity deficit at local level.

The Commission supported the principle of the funding of disaster relief and recovery through conditional grants. However, the Commission noted that the process of the immediate release of funds and declaration of disasters remained unresolved, as evident in the recent allocation of disaster relief funds through the adjustment budget.

3.1.3     Local Government equitable share and conditional grants

The Commission welcomed the proposed increase of 9.2 percent to the local government equitable share (LES) over the MTEF period as well as the greater distribution of funds to more poorly resourced municipalities as a result of the revised LES formula. However, the Commission re-emphasised that, in the absence of the ability of recipient municipalities to absorb the additional funds and spend it effectively, an increase in unproductive and inefficient spending and poor service delivery outcomes could occur.

The Commission noted that grant funding to municipalities was projected to increase by 23 percent over the MTEF period. In addition, it noted the deliberate reprioritisation of funds away from under-performing grants in order to increase funds for the Integrated City Development Grant and the Regional Bulk Infrastructure Grant. The Commission indicated that, while this meant redirecting unspent funds to areas of need, it did not solve the challenge of poor grant performance – especially if the root causes of poor performance were not dealt with first. The Commission therefore did not see this reprioritisation as a long term, sustainable solution and rather recommended that systemic issues be addressed and that the design of conditional grants be closely scrutinised.

The Commission raised a serious concern over the potentially severe under-investment in social and economic infrastructure in the local government sphere. This was due to a combination of structural financing problems and municipal inefficiencies. There is persistent under-spending on infrastructure grants by municipalities. In addition, one of the key findings from the Commission’s review of the local government fiscal framework was the potential under-funding of capital. This capital funding gap cannot be addressed if existing resources cannot be spent appropriately. In this regard, the role of the Municipal Infrastructure Support Agency (MISA) to support infrastructure roll-out and enhance capacity at municipalities is key. In addition, the Commission pointed out the challenges around asset care (specifically maintenance, refurbishment and rehabilitation) at local government level, and stressed the importance of an integrated approach to address these. Capacity building grants needed to be linked to other interventions undertaken by MISA as well as sector-specific interventions like the Approach to Distribution Asset Management (ADAM) underway in the electricity sector. The Commission maintained that legislation was needed to guide municipalities with respect to maintaining and renewing their infrastructure.

The Commission further advised that existing uncertainties around the powers and functions of district municipalities should receive urgent attention, as it created ambiguities around the expenditure assignment and appropriate financing instruments of this category of municipalities. The Commission indicated that a lasting solution was needed to ensure the financial sustainability of these municipalities.

The Commission reported that it had always been critical of the sharing of the General Fuel Levy (GFL) instrument with metro municipalities. One of the Commission’s concerns was the buoyancy of the revenue instrument. The projected revenue from the GFL was revised to fall for the 2013/14 and 2014/15 financial years relative to the amounts projected in the 2013 Budget.  As the metros received a fixed share of around 23 percent of the GFL, the overall envelope afforded to them was likely to decrease, most likely putting financial pressure on these municipalities. In this regard, the Commission welcomed the review of the GFL sharing along with all the own revenue funding sources of local government.

3.2        Submission by South African Local Government Association

The South African Local Government Association (SALGA) was invited to make a submission on the MTBPS which included the Division of Revenue Amendment Bill . In general, SALGA acknowledged the tight fiscal stance amid the national and global economic challenges. SALGA indicated that they noted the economic outlook and prudent fiscal policy. SALGA further submitted that a subdued economy and unemployment continued to negatively impact on revenue collection and service delivery in local government. In this regard, SALGA agreed with the tone of the MTBPS in that government, including municipalities, had to better use available resources to gain more value for money.

SALGA welcomed the 2013/14 financial year adjustments budget allocation of R293 million for local government and the additional funding through the adjustments budget which was aimed at disaster relief and implementation of capital projects through conditional grants.  SALGA noted the proposed 9 percent annual average growth of the local government allocation over the medium term and the phasing in of the new formula for allocation of the equitable share. However, SALGA proposed that the baseline allocation should be investigated going forward as the cost of services to the poor has increased substantially over time and therefore puts municipal free basic services programmes under pressure.

SALGA put it to the Committee that national government should address the matter of unfunded and underfunded mandates at local government. SALGA indicated that local government was faced with weak compliance with legislative provisions for assigned functions. SALGA argued that in some instances service level agreements did not exist, in other instances, norms and standards were not developed, and allocated funding was transferred too late or not at all. SALGA quoted the Financial and Fiscal Commission’s submission for the 2012/13 Division of Revenue which estimated the extent of unfunded mandates in metropolitan municipalities to be at R4 billion per annum. SALGA indicated that there was still a revenue collection challenge in most municipalities.

SALGA made a commitment that it would continue to impress upon its members to seek value for money in their operational budgets and to increase investment in infrastructure.

3.4        Municipal Demarcation Board

The Municipal Demarcation Board (the Board) explained that it re-organised municipal areas in terms of Section 21 of the Local Government: Municipal Demarcation Act 27 of 1998. The Board further submitted that upon re-organising municipal boundaries where there are major changes, the transition periods were highly involved and required both financial and non-financial resources to support affected municipalities with amalgamations and restructuring.

The Board explained that every five years it undertakes municipal boundary redeterminations at its own initiative or through an application for a municipal boundary review by any interested party. The Board further submitted that it had determined municipal boundaries throughout the Republic. Two of the major municipal boundary re-determinations were in Gauteng and nine in the KwaZulu-Natal Province.

3.4.1 Demarcation implications

The Board submitted that in terms of section 14(2)(b) of the Local Government: Municipal Structures Act 117 of 1998, such restructuring or reorganisation may include amongst others:

• The transfer of staff from an existing municipality to the superseding municipality, or if there is more than one superseding municipality, to any of those superseding municipalities.
• The transfer of assets, liabilities, rights and obligations, and administrative and other records, from the existing municipality to the superseding municipality.
• The continued application of any by-laws and resolutions of the existing municipality in that area, and the extent of such application.

3.4.2 Recommendations of the Board

The Board emphasised that government needed to consider allocating financial resources by way of a special grant to affected municipalities, which would assist with their preparatory work for restructuring. Such resources should be made available for the 2014/15 and 2015/16 financial years prior to the local government elections.

5.         Mandates from Provinces

5.1        Negotiating mandates

In compliance with section 7(b) of the Mandating Procedures of Provinces Act (Act 52 of 2008), provinces were required to submit their negotiating and final mandates. The submitted mandates were as follows:

5.1.1     Eastern Cape was in favour of the Bill.

5.1.2 Free State was in favour of the Bill.

5.1.3 Gauteng was in favour of the Bill.

5.1.4 KwaZulu-Natal supported the Bill.

5.1.5 Mpumalanga was in favour of the Bill.

5.1.6     Northern Cape supported the Bill.

6.1.7 North West was in favour of the Bill.

5.1.8     Limpopo did not submit a Negotiating Mandate.

5.1.9     Western Cape did not submit a Negotiating Mandate.

5.2.       Final Mandates from Provinces

5.2.1     Eastern Cape voted in favour of the Bill.

5.2.2 Free State voted in favour of the Bill.

5.2.3 KwaZulu-Natal supported the Bill.

5.2.4     Mpumalanga voted in favour of the Bill.

6.2.5 Northern Cape voted in favour of the Bill.

5.2.6     North West supported of the Bill.

5.2.7     Western Cape voted in favour of the Bill.

5.2.8 Gauteng did not submit a signed Final Mandate.

5.2.9     Limpopo did not submit a Final Mandate.

6.         Findings and observations

On engaging various stakeholders, the Committee made the following findings and observations:

6.1       There was an upwards adjustment of the provincial equitable share, meant for compensation of public service employees and improvements in conditions of service. The Committee is however concerned that there seems to be no correlation between the increase in salaries and improved service delivery; as well as continued reliance on consultants by government departments.

6.2       Some provinces have continued the under-spending of conditional grant funds allocated to them and that hampers service delivery. This has led to the reallocation of funds away from poor-spending grants and this might have unintended consequences like lower outputs and outcomes.

6.3       Other than under-spending and then applying for roll-overs or declaring savings, the departments were now adopting a new approach of declaring under-spending and that occurs only within five months after the budget had been passed. Declared under-spending like undeclared under-spending has the potential to compromise service delivery and might also obscure the actual performance of certain programmes.

6.4       Roll-overs in some cases have the potential to put extra pressure on the capacity to spend of the receiving institutions since such funds flow into their new budgets.

6.5       Only one incident of withholding of funds was reported (for Bela-Bela Local Municipality) but the Committee is concerned that despite its corrective nature, the withholding of funds would harm recipients of services more than the officials responsible.

6.6       Following a lack of spending on the National Health Grant: Health Facility Revitalization Component, a saving of R200 million was declared. While rescheduling part of the funds (R167 million) is understood, declaring an under-spending as a saving might signal the wrong message that under-spending is being condoned.

6.7       There is a need to create and timeously introduce a special transitional grant to assist municipalities that will be re-demarcated from the next municipal elections to prepare for such restructuring.

7.         Recommendations

After considering the submissions by the stakeholders and deliberating on its observations, the Select Committee on Appropriations recommends as follows:

7.1       The escalating costs of compensation of public service employees and funds spent on consultants need to be brought under control as there is no correlation between these costs and the provision of services to the poorest of the poor and under-spending.

7.2       The grant designs, capacity, monitoring and evaluation in government departments need to be improved on a continuous basis to ensure effective and efficient spending.

7.3       The business plans and strategic plans of departments should be properly costed. Departments should refrain from budgeting for programmes that they know they may not be able to roll out, as these funds could be allocated to other government functions. National Treasury should ensure that there is compliance with credible budgeting within the various spheres of government.

7.4       The National Treasury should ensure that, when roll-overs are approved, there are also plans and capacity to spend the roll-over funds in addition to current allocations.

7.5       The National Treasury should ensure that withholding of funds is used as a last resort when all efforts (to support and enforce compliance) have been exhausted. Government should ensure that action is taken against officials when withholding of funds is due to non-compliance or dereliction of duty.

7.6       The National Treasury should ensure that failure to spend is not regarded as savings since this might encourage under-spending in some cases.

7.7       A transitional conditional grant should be made available for the 2014/15 and 2015/16 financial years to municipalities that will be largely impacted on by the re-demarcations to be introduced from the next municipal elections, to enable these  municipalities to undertake the necessary preparatory work towards this restructuring.

7.8       Having considered the Division of Revenue Amendment Bill [B38 – 2013] (National Assembly – Section 76(1)) referred to it and classified by the Joint Tagging Mechanism as a Section 76(1) Bill, the Committee recommends to the House that it be adopted, without amendments.

Report to be considered.